Stay course on cuts, Saudis urge oil bloc

In Rus­sia, lag­ging com­pli­ance noted

Northwest Arkansas Democrat-Gazette - - FRONT PAGE -

Saudi Ara­bia on Mon­day em­pha­sized its com­mit­ment to rais­ing oil prices, promis­ing deep cuts to ex­ports next month even as OPEC and its al­lies al­lowed Libya and Nige­ria to keep in­creas­ing out­put.

Ship­ments from the Or­ga­ni­za­tion of Pe­tro­leum Ex­port­ing Coun­tries’ largest pro­ducer will be capped at 6.6 mil­lion bar­rels a day in Au­gust, 1 mil­lion bar­rels fewer than a year ear­lier, Saudi Ara­bia’s En­ergy and In­dus­try Min­is­ter Khalid Al-Falih told re­porters Mon­day af­ter meet­ing fel­low pro­duc­ers in St. Peters­burg, Rus­sia. Nige­ria and Libya — both ex­empt from cut­ting — will be al­lowed to in­crease out­put to their tar­geted lev­els, al­though both would strug­gle to achieve that, he said.

The Saudi min­is­ter pushed to im­prove ad­her­ence to the pro­duc­tion cuts from the na­tions par­tic­i­pat­ing in the deal. Com­pli­ance dropped to 92 per­cent in June from 110 per­cent in May, ac­cord­ing to peo­ple fa­mil­iar with OPEC’s in­ter­nal data.

“Some coun­tries con­tinue to lag” in their com­pli­ance “which is a con­cern we must ad­dress head-on,” Al-Falih said. “Ex­ports have now be­come the key met­ric for fi­nan­cial mar­kets, and we need to find a way to rec­on­cile cred­i­ble ex­port data with pro­duc­tion data in our mon­i­tor­ing.”

The Joint Tech­ni­cal Com­mit­tee, which mon­i­tors com­pli­ance with the cuts, will now also study data on ex­ports, he said.

De­spite the re­newed fo­cus on ex­ports, the meet­ing of min­is­ters from OPEC and non-OPEC pro­duc­ers left their sup­ply deal largely un­changed, bet­ting that ris­ing de­mand will com­bine with the ex­ist­ing curbs to rapidly de­plete fuel stock­piles and buoy prices in the year’s sec­ond half. That could prove to be a risky wa­ger if pro­duc­tion from na­tions not bound by any re­stric­tions keeps grow­ing to fill the gap left by oth­ers.

Mar­kets ap­pear to have shrugged off the an­nounce­ment meant to ad­dress con­cerns that pro­duc­tion cuts agreed upon last year are fail­ing to achieve their goal of push­ing prices higher.

“Did Saudi Ara­bia pull a rab­bit out of the hat?” wrote He­lima Croft, an oil an­a­lyst at the in­vest­ment bank RBC Cap­i­tal Mar­kets. “No.”

West Texas In­ter­me­di­ate crude for Septem­ber de­liv­ery rose 57 cents to set­tle Mon­day at $46.34 a bar­rel on the New York Mer­can­tile Ex­change. Brent crude for Septem­ber set­tle­ment was 54 cents higher, clos­ing at $48.60 a bar­rel on the Lon­don-based ICE Fu­tures Europe ex­change. Brent, the in­ter­na­tional bench­mark, is trad­ing at a gain of less than $2 since the cuts were agreed on last year.

Auto club AAA said the av­er­age price for a gal­lon of gaso­line in Arkansas on Mon­day was $2.01, up from $2.00 a week ago and $1.96 a year ago. The na­tional av­er­age price Mon­day was $2.28.

In a state­ment af­ter the meet­ing, OPEC seemed con­tent with mildly tough talk, chastis­ing — but not nam­ing — other coun­tries for fail­ing to fol­low through with promised cuts to out­put.

“There is still room for im­prove­ment by some par­tic­i­pat­ing pro­duc­ing coun­tries,” the car­tel said. “All par­tic­i­pat­ing pro­duc­ing coun­tries must promptly reach full con­form­ity.”

Rus­sia’s en­ergy min­is­ter, Alexan­der No­vak, com­plained that “some coun­tries are not yet fully im­ple­ment­ing” the cuts.

“De­spite the high level of com­pli­ance with the agree­ment, we in­sist on all coun­tries ful­fill­ing their obli­ga­tions 100 per­cent,” he said, in com­ments re­ported by Rus­sian state news agen­cies. Rus­sia is not a mem­ber of OPEC but signed on to last year’s agree­ment to curb ex­ports.

While de­mand will be al­most 2 mil­lion bar­rels a day higher in the sec­ond half of the year com­pared with the first six months, ac­cord­ing to OPEC es­ti­mates, ris­ing sup­ply in­side and out­side OPEC sug­gests the cuts won’t put a sig­nif­i­cant dent in teem­ing global oil in­ven­to­ries.

Libya and Nige­ria are a big part of OPEC’s prob­lem. The African na­tions, granted an ex­emp­tion last year from cuts be­cause their out­put had al­ready been re­duced by in­ter­nal strife, have added 440,000 bar­rels a day of pro­duc­tion in the past two months ac­cord­ing to data com­piled by Bloomberg. That’s equiv­a­lent to about a third of the re­duc­tions im­ple­mented by fel­low OPEC mem­bers.

That re­cov­ery had prompted spec­u­la­tion that OPEC would seek to limit their pro­duc­tion at the St. Peters­burg talks, but other mem­bers ac­cepted that both coun­tries were still be­low their full po­ten­tial.

Nige­ria is ready to cap out­put at 1.8 mil­lion bar­rels a day, if it is able to reach that level, Oman’s oil min­is­ter Mo­hammed Al Rumhy told re­porters af­ter the meet­ing. Its pro­duc­tion hasn’t risen that high since Fe­bru­ary 2016, and oil theft is still hurt­ing out­put de­spite the na­tion’s suc­cess end­ing mil­i­tant at­tacks.

Libya has a tar­get of 1.25 mil­lion bar­rels a day, Al-Falih said. That’s al­most 50 per­cent above its av­er­age June pro­duc­tion of 840,000 bar­rels a day, ac­cord­ing to Bloomberg.

In­for­ma­tion for this ar­ti­cle was con­trib­uted by Wael Mahdi, Grant Smith, Elena Mazneva and Meenal Vam­burkar of Bloomberg News, Stan­ley Reed of The New York Times and by The As­so­ci­ated Press.

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