Opec policy needs clarity

london — We’ve learned two things on the oil policy of Opec and friends from meetings in Muscat, Oman and Davos. They don’t know the destination, but they know they haven’t got there.

Since the group started their output cuts in January last year, it gradually emerged that they had a goal of returning inventories to a five-year average level. But this benchmark has never been precisely defined. What inventories? Where? Measured in what units? Against which five-year baseline? None of these questions has yet been addressed.

Saudi oil minister Khalid Al Falih admitted as much during the Press conference after the Joint Ministerial Monitoring Committee meeting in Muscat last weekend, when he suggested that a technical discussion was required on what the oil market needs in terms of inventory. But inventory levels themselves are not a particularly good metric on which to base output policy.

Using them as a goal may dampen some of the political heat that accompanies a price target, but the disadvantage is that they’re a backward-looking measure.

The Opec has become averse to setting a price target, perhaps in part because it wants to avoid accusations of manipulating the oil market. So an inventory target it is. But that raises the question of what inventory target. — Bloomberg