OPEC’s output- cut deal: A tale of two cities

IS the oil market on the right course for recovery? Are all the 22 countries participating in the global agreement to curb production complying with their pledges?

The answer will depend on whether you listen to experts in either of two key European cities.

In Vienna, where the Organization of the Petroleum Exporting Countries (OPEC) is headquartered, the picture looks rosier than in Paris, where the oil consumers’ watchdog, the International Energy Agency (IEA), is located.

The producers concluded in a meeting on Friday that the compliance with the pledged output- cut targets was better in February compared to January. OPEC’s technical committee said that the compliance of the group’s members with the cuts stands at 106 percent, up from 94 percent in January. The non- OPEC producers’ compliance also rose.

In Paris, the IEA gave a less positive picture in its monthly report issued last week, saying that OPEC’s compliance went down to 91 percent in February from 105 percent in January. A similar trend was reported for non-OPEC producers.

Based on OPEC’s estimates, the market is set for a recovery, while the IEA’s report suggests that it will take longer for the market to rebalance. Who to believe of the two? It is hard to tell because each side has its own data so the only way to understand the situation will be by looking at the level of oil in storage.

Oil prices are under pressure because of the high level of oil inventories that accumulated over the past two years. Saudi Arabia and OPEC are determined to bring that level down below the five-year average and before that happens, nothing will change in the market.

Saudi Energy Minister Khalid Al-Falih told Bloomberg TV in an interview on Thursday that his country and OPEC will extend the supply-cut deal “if needed.” The extension of the deal will rest on stockpiles, he said.