OPEC is finding itself backed into a corner: the group, it appears, is prepared to extend the oil production cut agreement that is set to expire at the end of June and also increase the cuts, if inventories fail to drop to a specified level, sources from the group told Reuters.
The agreement, which also involves 11 non-OPEC producers, including Russia, Mexico, Kazakhstan, Azerbaijan, and several smaller producers, envisaged taking off around 1.8 million barrels from the global daily supply. This means, according to the sources, that global stockpiles should shrink with 300 million barrels in the six-month period, to reach the five-year average. This, however, requires a compliance rate of 100 percent from all participants.
Reliable inventory data from all the countries taking part in the agreement is not coming soon and will likely still not be available when OPEC meets in May to discuss progress. Non-OPEC producers may also attend the meeting.
Meanwhile, loading data from Angola, currently Africa’s largest oil exporter and a member of OPEC, has revealed that the country plans to export 1.691 million bpd in April, up from 1.54 million bps to be exported in March. Production increased to 1.651 million bpd in January, well above Nigeria’s 1.576-1.604 million bpd. Related: A Bloodbath Looms Over Oil Markets
Despite this stated readiness to cut as much as necessary for as long as necessary, the odds are against any noticeable pickup in prices, at least until conclusive supply data becomes available.
It’s true that OPEC is doing a surprisingly good job—at least initially—in complying with its promised output cuts, but pressured by budget deficits caused by the oil price crash, producers will be tempted to pump and export more at those higher prices. For many observers, there is only one question: when OPEC members – or non-OPEC producers for that matter – will start cheating and who will start first.
By Irina Slav for Oilprice.com
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