Opec scores in rev­enue af­ter out­put cuts

The Star Early Edition - - BUSINESS REPORT -

WITH world oil in­ven­to­ries swelling de­spite a global pact on cut­ting out­put and crude prices fall­ing by a fifth in the past month, Opec ap­pears to be los­ing its bat­tle to bal­ance the mar­ket. But there is one cru­cial fight the oil-ex­port­ing group has been win­ning so far: its mem­bers have earned more money this year than last and the prospect of higher rev­enues is likely to mo­ti­vate Opec to stick with out­put cuts or deepen them. Opec’s first out­put cut in eight years has earned the group $1.64 bil­lion (R21.2bn) a day so far this year, up more than 10 per­cent from the sec­ond half of 2016, ac­cord­ing to Reuters’ cal­cu­la­tions based on Opec fig­ures for av­er­age pro­duc­tion and its crude bas­ket price up un­til June 20. Com­pared with the first half of 2016, when oil prices sank to a 12-year low near $27 a bar­rel, the in­crease in in­come is a dra­matic 43 per­cent, even though Opec pro­duc­tion was lit­tle changed. In­come could rise in the rest of the year if, as Opec hopes, a sup­ply glut is ban­ished. Opec plus Rus­sia and other non-Opec pro­duc­ers agreed on May 25 to ex­tend sup­ply cuts to March, af­ter an ini­tial deal to keep them in place for the first half of 2017. “I ex­pect the gains for Opec to be higher in the sec­ond se­mes­ter 2017 due to a tight mar­ket in the third and fourth quar­ter, de­spite an over­sup­ply from non-Opec not tied to the Opec agree­ment, and higher-than-ex­pected pro­duc­tion from Libya and Nige­ria,” said Chakib Khelil, Al­ge­ria’s former oil min­is­ter. He es­ti­mated Opec rev­enues rose about 8 per­cent in the first half of 2017, fol­low­ing its move at the end of 2016 to cut over­all out­put by about 4 per­cent. “The over­all gain in rev­enues for Opec would be 9 to 10 per­cent for 2017.”

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