When is 60% compliance a good thing? When it’s not 40%...
That is the latest status on the non-OPEC nations who agreed to November’s production cut, as discussed at the first meeting of the monitoring committee, held in Vienna last week. Kuwait chairs the five-member committee which also includes Algeria, Venezuela, Russia and Oman.
Asked by Reuters about compliance with the deal so far, Saudi energy minister Khalid al-Falih said it had been “very good” and the Russian Energy Minister Alexander Novak also said he was satisfied. Bloomberg reported that in January compliance was 48%, equating to an output reduction of 270,000.
However despite the February figure being anywhere between 60 and 66%, the Oil Minister for Kuwait Essam al-Marzouq is calling for more action. As one insider told Reuters, “This shows the seriousness of OPEC and non-OPEC in implementing the agreed cut.”
To remind you, OPEC and 11 non-OPEC countries agreed back at the end of last year to almost 1.8m bpd of cuts. The non-OPEC cut was 558,000m bpd. As if you need reminding, it followed an historic collapse in prices lasting more than two years and a global glut in supply. The move has been credited with listing oil prices roughly 20% in the intervening months.
However the meeting came at a tough time, when OPEC was refuting the suggestion that the increases in US shale oil was preventing their measures from having an impact. There’s hope according to the Secretary-General Mohammad Barkindo that they and President Trump might have an “energy dialogue” and that the US could be “a partner – a strategic partner in the rebalancing process.” (ED: Yes the US President has repeatedly sworn to implement “bold action to lift the restrictions on American energy” but you never know. Keep the faith.)
OPEC has also come under fire from a Professor of Energy Policy at the University of Oxford, who says the current approach might be completely wrong. Dieter Helm addressed the International Petroleum Week held in London and told attendees that he believed prices would only ever really reduce. “For the NOC’s (National Oil Companies) in the Middle East and elsewhere, increasing production is quite a good idea, because you’re going to need the money and you might as well get your stuff out of the ground now rather than later. So, the opposite of what’s currently happening.”
He put the eventual decrease down to an increased focus on climate change and renewable energy, with a decreasing demand on fossil fuels.
The good thing is you can always find someone with a completely different opinion than you, even when faced with the same facts. Marketwatch.com quotes a Citigroup strategist who said Brent oil could make its way up to $70 by the end of the year, and the even more optimistic Phil Flynn, he of the PRICE Futures Group said they’ve bene going for $73 pb for US Crude and $71 pb for Brent since January.
All in all, the mood across the week in London was upbeat. Let’s give the final words to the EVP at Statoil, Jens Økland, who told reporters, “Some have started to predict the near end of our industry. I could not disagree more. I’m confident that we will play a constructive part as the world will need a lot of oil and gas even in a climate change scenario.”