OPEC November deal under attack as US pumps away unrestrained
No sooner had OPEC decided last November 30 to extend production cuts to end 2018 from both OPEC and non-OPEC countries that we are now beginning to hear voices that want out, sooner rather than later.
This was made especially relevant as US production increased to new heights, not having to abide by OPEC cuts, and having shunned the November meetings.
At stake are 1.8 million barrels per day that countries are hoping to re-pump, likely much more, before the supply pact aimed at reducing oil stocks in industrialised countries to their five-year average is reached, which at this point is only 50% achieved, thus the cuts.
UAE Minister Suhail Al Mazrouei said it was premature to comment on when OPEC will exit the production cuts agreement.
He said on Monday that OPEC and non-OPEC oil producers plan to announce in June 2018, an exit strategy from global supply cuts in a UAE-hosted event.
So who’s voicing dissent and why?
Just about everybody
According to Bloomberg, OPEC and its global allies including Russia may end their production cuts before 2019 if the crude market re-balances by June, quoting Kuwait’s oil minister, who was speaking to Bloomberg on the sidelines of an event of the Organization of Arab Petroleum Exporting Countries.
“Russia is keen to end the output-capping deal as early as possible,” Issam Almarzooq told Bloomberg on Sunday in Kuwait City.
According to Reuters, Russian Energy Minister Alexander Novak said the eventual withdrawal should be gradual.
Novak said it may take between three and six months to exit the deal, depending on the state of the global oil market and demand for crude.
Libya itching to exit now
Reuters said the head of Libya’s U.N.-backed government held a rare meeting last Saturday with the head of the National Oil Corporation (NOC) and the governor of Tripoli’s central bank to discuss funding to raise oil production.
“The meeting dealt with the necessary financial arrangements to provide funding to the NOC so as to be able to raise production and carry out its tasks and responsibilities in … production, exploration, refining and transport of crude oil and petroleum products,” the government of national accord (GNA) said.
The GNA statement added that rising oil output would help “reduce the deficit, and helps the Central Bank of Libya to take monetary policies to deal with the liquidity crisis and support the Libyan dinar and stimulate the national economy.”
Libya increased output to about 1 million barrels per day, but the country’s budget is in deficit.
According to OilPrice.com, an industry website, Libya along with Nigeria agreed to keep their combined production at no more than 2.8 million bpd until the end of 2018.
US pumps and pumps
There is growing attention to expanding US oil production, which according to US Energy Information Administration, US crude oil production rose by 25,000 barrels per day (bpd) last week to 9.71 million barrels per day, bringing output close to levels of top producers Russia and Saudi Arabia.
Oilprice.com said Wall Street still believes U.S. shale oil producers will scramble to increase production any time oil is over $50.
WTI trades at above $57 a barrel compared to Brent at $63, but Reuters reported a source as telling it that if U.S. production continues to increase, it would undermine the cuts that OPEC, Russia, and ten other producers agreed to.
“In other words, they might decide to drop the whole thing before December 2017 if it fails to restrain U.S. production,” said Oilprice.com