September 21, 2017
On the eve of a gathering in Vienna, OPEC and its allies gave mixed signals on what they might do next in their bid to clear a global oil glut.
Ministers from nations that together pump more than half the world’s oil at times made conflicting statements about whether they would use their meeting on Friday to address perceived shortcomings in their agreement. While their production cuts have shown signs of success in recent months, the market could return to surplus next year if the group allows the accord to expire at the end of March.
“Everybody believes now that it’s still too early to talk about concrete timing of extending,” Russian Energy Minister Alexander Novak told reporters in the Austrian capital on Thursday. “We will monitor closer to the end of the agreement, when it would be possible to discuss it more.”
While Kuwait’s Oil Minister Issam Almarzooq agreed with his Russian counterpart, Algerian Energy Minister Mustapha Guitouni told his country’s state-run press service that they would discuss the matter. Novak also said there was no formal proposal for a further 1 percent cut, which Iraq’s Oil Minister Jabbar Al-Luaibi had suggested on Tuesday that some members were discussing.
The Organization of Petroleum Exporting Countries and its allies have several reasons to hold a steady course. Brent crude, the international benchmark, closed at the highest level since February on Thursday, an increase of more than 25 percent since June as the world’s bloated fuel inventories shrink. Nine months into their agreement, implementation of the pledged 1.8 million barrels a day of production cuts remains high.
Still, as U.S. shale oil continues to thrive and seasonal demand wanes, the surplus that has weighed on markets for three years could soon return. If OPEC doesn’t extend the supply curbs beyond their current expiry at the end of March, the market will return to oversupply again, forecasts from the International Energy Agency indicate.
The group’s Joint Technical Committee, which met on Wednesday to assess members’ compliance with pledged cuts, didn’t discuss deeper or longer cuts, said a delegate, who asked not to be identified because the talks were private.
The committee did recommended that ministers should consider informal monitoring of exports in addition to production, said two delegates, a move that Saudi Arabia has been pushing for in order to improve transparency. OPEC’s rules mean these figures would only be discussed internally and the so-called secondary sources production estimates — compiled from third parties and published each month– would remain the only official way for measuring compliance, the delegates said.