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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 Deal Not Enough To Draw Down Record Oil Inventories

Even if OPEC producers’ ministers hail the cartel’s deal to cut collective supply as the beginning of oil market rebalancing and stabilization, Bloomberg News has calculated that global oil stockpiles would be little reduced throughout the entire 2017.

According to Nigeria’s Minister of State for Petroleum Emmanuel Kachikwu, the global oil market would rebalance “toward the middle of next year,” Bloomberg said.

However, analysts are not so optimistic.

Tamas Varga, analyst at brokerage PVM Oil Associates Ltd. in London, commented, “Even with 100 percent compliance from both OPEC and non-OPEC producers, global stocks are unlikely to fall in the first half of 2017.”

Last week OPEC pledged to cut the cartel’s total production to 32.5 million bpd as of January, but made the deal contingent on convincing non-OPEC producers to cut another 600,000 bpd.

OPEC and NOPEC representatives are meeting in Vienna on Saturday to discuss cooperation on production cuts. As we go into the meeting, so far only Russia among the non-OPEC members has pledged a cut, by a gradual 300,000 bpd reduction over the first half of 2017.

Oman, another non-OPEC nation, is also seemingly on board, saying it would announce cuts after the meeting, and indicating prior to the OPEC deal that it might be willing to cut 5-10 percent.

Russia, Mexico, Kazakhstan, Azerbaijan, and Oman are the only countries —out of 14 non-OPEC producers invited to the talks—that have confirmed they would attend tomorrow’s meeting.

Still, concerns are that OPEC members will cheat, Russia would rename its seasonal spring production suspension as its ‘gradual cut’, and Mexico, Azerbaijan and Colombia would wrap up natural declines in production as genuine cuts. Related: Oil Markets Not Convinced OPEC Deal Can Kill The Glut

According to Bloomberg, OPEC’s track record shows that the cartel delivers 80 percent of pledged cuts.

People familiar with the talks told Bloomberg that OPEC may be ready to accept other non-OPEC producers dressing up natural declines as cuts, but only if Russia made a legitimate production cut.

Should OPEC get in its good old ways and deliver 80 percent of the cuts it had pledged, then it would need non-OPEC producers to slash a total of 600,000 bpd of production—legitimately—so that oil oversupply could draw down in 2017.

“We don’t think too many non-OPEC countries actually have the power and will and influence over the oil companies to actually hold back barrels,” Per Magnus Nysveen, senior partner and head of analysis at Rystad said, as quoted by Bloomberg.

By Tsvetana Paraskova for Oilprice.com

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