At a meeting in Vienna yesterday, Saudi Arabia, Russia, Venezuela, Algeria, Oman, Qatar, and Kuwait agreed on a mechanism to monitor the rate of compliance with the crude oil production cut agreement sealed at the end of last year as an effort to rebalance the market.
The meeting comes amid growing concern among investors about the chance of success of the agreement, given OPEC's history of going back on its word in similar agreements in favor of protecting market share and revenues.
In addition to bullish statements from the attending oil ministers, such as Russia's Novak's belief that international benchmark prices could reach US$60 before the end of the year, the meeting aimed to stoke optimism in a more concrete way: by setting up a committee as part of a mechanism to monitor compliance among the signatories of the production cut deal.
When the deal was first agreed, OPEC said that it would use its secondary-source production figures for each member as the principal tool of assessment. These, however, do not cover Russia's and other non-members' production. Exports are also likely to be factored in the assessment.
A committee will be set up to double-check production figures from the producers as well as from international organizations. A rate of compliance at 80-90 percent would be sufficient for the agreement's success, Algeria's Oil Minister Noureddine Boutarfa said. Novak said that only 100% compliance will be accepted.
The compliance issue is likely to remain center stage for the remainder of the month, the ministers also said, with more production data unlikely to be released from the OPEC-non-OPEC camp. Rather, the partners will be announcing further details about how they would assess compliance. So far, according to the officials, 1.5 million bpd of crude have been taken off world markets.
Oil's initial reaction was positive, but moderately so: Brent crude trading at US$55.54 a barrel in midday Asia trade on Monday, up by 0.1 percent, and WTI changing hands at US$53.25 a barrel, up by 0.06 percent.
By Irina Slav for Oilprice.com
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