Opec scores in revenue after output cuts

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.”