Opec pro­duc­ers wary of cre­at­ing glut in ‘well-sup­plied’ mar­ket

Cape Times - - WORLD - ALEX LAWLER

OPEC sees the oil mar­ket as well sup­plied and is wary of re­vis­it­ing a glut next year, the group’s sec­re­tary-gen­eral said yes­ter­day, sug­gest­ing pro­duc­ers are in no rush to ex­pand a June agree­ment that raises out­put.

Oil prices have ral­lied this year on ex­pec­ta­tions that US sanc­tions on Iran will strain sup­plies by low­er­ing ship­ments from Opec’s third-largest oil pro­ducer. Brent crude last week reached $86.74, the high­est since 2014.

Opec sec­re­tary-gen­eral Mo­ham­mad Barkindo, speak­ing at the Oil & Money con­fer­ence in Lon­don, said there were many non-fun­da­men­tal fac­tors in­flu­enc­ing the oil mar­ket that were be­yond oil pro­duc­ers’ con­trol.

“The mar­ket has been re­act­ing to per­cep­tions of a pos­si­ble sup­ply short­age. The mar­ket re­mains well sup­plied,” he told a brief­ing. “The pro­jec­tions for 2019 clearly show a pos­si­ble re­build of stocks,” he said of the sup­ply and de­mand bal­ance for next year.

One of those fac­tors, ac­cord­ing to an­a­lysts and some mem­bers of Opec, has been the de­ci­sion by US Pres­i­dent Don­ald Trump to reim­pose sanc­tions on Iran.

Trump has de­manded that Opec cool prices by pump­ing more oil. Barkindo, asked whether Trump’s crit­i­cism of Opec was un­fair, said: “The mar­ket is cur­rently be­ing largely driven by de­ci­sions taken else­where – out­side Opec, out­side non-Opec.”

Opec and al­lied pro­duc­ers – not in­clud­ing the US – agreed in June to re­turn to 100 per­cent com­pli­ance with out­put cuts that be­gan in Jan­uary 2017, af­ter months of un­der­pro­duc­tion in Venezuela and else­where pushed ad­her­ence above 160 per­cent.

Pro­duc­ers have yet to in­crease sup­ply enough to reach 100 per­cent.

Barkindo, re­spond­ing to a ques­tion whether pro­duc­ers needed to go be­yond full de­liv­ery of the agree­ment, said they were tak­ing it step by step.

“We have to con­tinue to as­sess to see how and when we will achieve the 100 per­cent con­form­ity and how the mar­ket would re­spond, hop­ing that some of these non-fun­da­men­tal fac­tors will evap­o­rate by then,” he said.

“We re­main faith­ful to what we agreed in June.”

Opec holds its next pol­icy-set­ting meet­ing in De­cem­ber.

He said oil pro­duc­ers were wor­ried about spare out­put ca­pac­ity amid a re­duc­tion in en­ergy-in­dus­try in­vest­ment, given the price rise on fears of a drop in Ira­nian sup­ply.

“We are very con­cerned,” Barkindo said in re­sponse to a ques­tion about spare ca­pac­ity, cit­ing a con­tin­ued de­cline in oil in­dus­try in­vest­ment re­sult­ing from a mar­ket down­turn that be­gan in 2014.

Saudi Ara­bia, the de facto leader of Opec, is the only oil pro­ducer with sig­nif­i­cant spare ca­pac­ity on hand to sup­ply the mar­ket if needed.

The king­dom will in­vest $20 bil­lion in the next few years to main­tain and pos­si­bly ex­pand its spare oil pro­duc­tion ca­pac­ity.

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