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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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OPEC: 50% Compliance To Output Deal Is ‘Enough’

Just two weeks into the OPEC supply-cut deal and a day after Saudi Arabia signaled that it had cut more than pledged, the cartel itself does not see more than 80 percent compliance, and thinks it would be “acceptable” even if it were to deliver just 50 percent of promised cuts.

On the basis of previous deals to remove crude oil supply from the market, a compliance rate of between 50 to 60 percent would be “good enough”, an OPEC source told Reuters on Friday.

“Normally for OPEC, good compliance is near 80 percent,” an OPEC delegate said, noting that it won’t be 100 percent this time around either (not that anyone had really expected it).

Saudi Arabia, the cartel’s de factor leader and largest producer, said yesterday that it had cut its production to below 10 million bpd, the lowest level in two years, and even lower than its commitment in the OPEC deal to reduce supply by 486,000 bpd to 10.058 million bpd.

Kuwait’s OPEC governor Nawal Al-Fezaia said earlier this week in an interview with Bloomberg that producers, including Saudi Arabia, Kuwait, UAE, Qatar and Oman are complying with the cuts.

Kuwait is chairing a monitoring committee that will oversee OPEC’s cut implementation.

Analysts are not surprised that the Saudis and their closest Gulf Arab allies are complying with the cuts. But not all OPEC members will follow Saudi Arabia’s ‘lead by example’. An industry source told Reuters that concerns exist over whether economically-collapsing Venezuela would be committed to all cuts and whether Iraq would comply. Related: Saudis Cut Even More: Oil Production Falls To 2 Year Low

Venezuela, one of the staunchest supporters and promoters of the deal, has said it had started cutting output as per the OPEC agreement.

However, in the absence of mechanisms to enforce cuts, OPEC members and the non-OPEC producers that have promised cuts would be complying voluntarily, and not once in history has OPEC delivered all promised cuts.

According to the International Energy Agency (IEA), OPEC’s historical compliance rate has averaged 60 percent.

But some analysts are even more optimistic than OPEC, with Goldman Sachs expecting compliance at 84 percent and Energy Aspects oil analyst Virendra Chauhan expecting compliance at 80 percent.

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • JMAN57 on January 13 2017 said:
    OPEC's "deal" is a big joke. It never made sense in the first place since the targeted numbers were out of touch with recent production figures. Now they openly admit cheating on the deal. Oil traders are a bunch of suckers who will soon deservedly lose their money.
  • Mrinal on January 15 2017 said:
    Do not worry about cheating by opec members. They are all trying to make more money from the sale of their product and the only way they can make more is by selling oil at a higher price. When they see price stalls they will stop cheating, oil supply will drop and price will rise. It will take some time. But once the storage drops to a normal level watch for the panic in the oil market.

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