OPEC ex­pected to de­liver only half of tar­get pro­duc­tion cut

Kuwait Times - - BUSINESS -

OPEC will achieve some but not all of the pro­duc­tion cuts the or­ga­ni­za­tion agreed last month, ac­cord­ing to an in­for­mal sur­vey of en­ergy pro­fes­sion­als con­ducted af­ter the agree­ment was an­nounced. Most en­ergy pro­fes­sion­als ex­pect OPEC out­put will de­cline to around 33.0 mil­lion bar­rels per day in Jan­uary 2017, down from 33.6 mil­lion bpd in Oc­to­ber but well above the deal’s tar­get of 32.5 mil­lion bpd.

Most of the 260 re­spon­dents to the sur­vey think the or­ga­ni­za­tion will suc­ceed in cut­ting out­put, but on av­er­age by only 600,000 bpd, or half its stated tar­get of 1.2 mil­lion bpd. Less than 8 per­cent thought OPEC would achieve its tar­get in full. Skep­ti­cism about OPEC’s abil­ity to meet its tar­get un­der­lines the chal­lenge fac­ing the or­ga­ni­za­tion as it tries to re­duce global oil stocks and raise prices next year.

Saudi Ara­bia and its al­lies Kuwait, Qatar and the United Arab Emi­rates have pledged to cut their com­bined pro­duc­tion by al­most 790,000 bpd with ef­fect from Jan­uary. Cuts by these mem­bers will prob­a­bly be de­liv­ered in full, or al­most, given their track record of com­ply­ing with past out­put agree­ments.

But the cur­rent deal as­sumes cuts of around 380,000 bpd from other mem­bers of OPEC, most of which have a poor track record of com­pli­ance and are un­likely to de­liver them in full. In ad­di­tion, Nige­ria and Libya were specif­i­cally ex­empted from out­put ceil­ings im­posed on other mem­bers of OPEC to al­low them to in­crease pro­duc­tion if they can re­store se­cu­rity at their oil fa­cil­i­ties.

Most OPEC mem­bers ac­tu­ally raised pro­duc­tion last month, even as they talked about re­duc­ing it from Jan­uary, as they tried to de­fend mar­ket shares and es­tab­lish the high­est pos­si­ble base­line for fu­ture cuts. OPEC pro­duc­tion hit a record high of 34.19 mil­lion bpd in Novem­ber from 33.82 mil­lion bpd in Oc­to­ber, ac­cord­ing to the of­fi­cial Reuters sur­vey.

OPEC mem­bers have been con­sis­tently boost­ing pro­duc­tion for the last six months even as they have been talk­ing about the need for a freeze or cut to drain ex­cess stocks.

The short-term boost in pro­duc­tion has wors­ened the sup­ply sit­u­a­tion, in­creased stock­piles, and made the even­tual process of re­bal­anc­ing harder. If OPEC mem­bers can de­liver some sort of pro­duc­tion cut, even one of only 600,000 bpd, it will help bring re­bal­anc­ing for­ward, but the process is still likely to be a long and dif­fi­cult one.

OPEC needs strong growth in oil con­sump­tion next year to ab­sorb cheat­ing by the or­ga­ni­za­tion’s mem­bers, as well as a pos­si­ble in­crease in ex­ports from Nige­ria and Libya, and a potential rise in US shale pro­duc­tion. — Reuters

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