The outcome of last week’s meeting of member countries of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC countries could rebalance the global crude oil market and shore up prices, writes Chineme Okafor
When OPEC rose from its 171st meeting and announced that its members would cap their production starting from January 2017 by 1.2 million barrels (mb), it also disclosed that they would be looking to non-OPEC member countries to reduce their daily output by 600,000 barrels per day as well, and that a December 9 to 10 Vienna meeting would seal this agreement.
Eventually, the December 9 to 10 meeting in Vienna, capital of Austria by the two groups took place with a far-reaching decision made by the non-OPEC group to also cut their production volume by 558,000 barrels per day (bd).
Details of that, from all indication, was diplomatically ironed out to match the production cuts OPEC member countries agreed on three weeks back, with hopes that it would advance the market rebalancing attempts.
As expected, the meeting was observed by the market for reasons that included its impacts on prices of oil and how the two groups planned to commit to the pact.
While 14 non-OPEC members were reportedly invited by OPEC to the production cap parley, only 11 of them eventually showed up and signed it off, led by Russia who has remained firm and eager to see out the deal.
As earlier confirmed by Russia’s Energy Minister, Alexander Novak, the federation was willing to deliver 300,000bd in the cuts agreement, and it did, leaving the others -Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, Republic of Sudan, and Republic of South Sudan, to take off the balance of 258,000bd.
Eleven OPEC members in their own meeting agreed to cut out 1.2million barrels from the market in this order: Algeria to shave off about 50,000bpd to now produce 1.039mbpd, Angola – 1.673mbpd from 1.715mbpd, Ecuador – 522,000bpd from 548,000bpd, Gabon – 193,000bpd from 202,000bpd, Iran – 3.797mbpd from 3.975mbpd, Iraq – 4.351mbpd from 4.561mbpd, and Kuwait – 2.707mbpd from 2.838mbpd, Qatar – 618,000bpd from 648,000bpd, Saudi Arabia – 10.058mbpd from 10.544mbpd, United Arab Emirates (UAE) – 2.874mbpd from 3.013mbpd, and then Venezuela from 2.067mbpd down to 1.972mbpd, while non-OPEC countries also from the agreement would cut production in the order of Azerbaijan pulling in 35,000bd, Bahrain – 10,000bd, Brunei Darussalam – 4,000bd, Equatorial Guinea – 12,000bd, Kazakhstan – 20,000bd, Malaysia – 20,000bd, Mexico – 100,000bd, Oman – 45,000bd, Russia – 300,000bd, Republic of Sudan – 4000bd, and Republic of South Sudan – 8000bd.
In its report of the proceedings, OPEC stated that, “The meeting took into account current oil market conditions and short to medium term prospects and recognised the need for joint cooperation of the oil exporting countries to achieve a lasting stability in the oil market in the interest of oil producers and consumers.”
It further stated in this regards that the non-OPEC countries proposed to adjust their oil production, voluntarily or through managed decline, starting from January 1, 2017 for six months, extendable for another six months, to take into account prevailing market conditions and prospects.
Perhaps, with regards to reports of past mistrust in implementing such deals to the latter, OPEC stated that the group would join its ministerial monitoring committee, consisting of oil ministers, chaired by Kuwait with the Russian Federation as alternate chair and assisted by the OPEC Secretariat to strengthen their cooperation, including through joint analyses and outlooks, with a view to ensuring a sustainable oil market, for the benefit of producers and consumers, and to regularly review at the technical and ministerial levels the status of their cooperation.
Oil Price Responds
Meanwhile, the Reuters reported on Friday that as part of the expected impacts of the deal to drain a global glut, oil prices rose after Kuwait appeared to be lining up a bigger supply cuts than had been initially expected from January.
It stated that on the back of this, amongst others, the international Brent crude oil futures were trading at $54.29/b, up 75 cents, or 0.5 per cent from their last settlement.
U.S. West Texas Intermediate (WTI) crude futures, according to it, were up 31 cents, or 0.61 per cent, at $51.21 per barrel.
The report equally noted that the higher prices came after Kuwait, an OPEC member, notified customers that it would cut supplies from January as part of the deal by OPEC and non-OPEC members to cap production by almost 1.8mbd and reduce a fuel supply overhang that has dogged markets for over two years.
According to Reuters, Kuwait Petroleum Corporation (KPC) officially notified its customers of a cut in their contractual crude oil supplies for January.
It also said, beyond the impact of cuts from OPEC, analysts stressed that the willingness of non-OPEC producers to join the cutbacks was significant for the market.
“The decision by a group of 11 non-OPEC producers to join OPEC in production cuts has likely put a floor on Brent oil prices in the low $50s until such time as adherence to the cuts can be assessed,” Reuters quoted U.S. investment banking firm, Jefferies, to have said in a note to its clients.
Nigeria May Profit from the Deal
Meanwhile, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, was also quoted to have said at a Bloomberg Markets Summit in Abu Dhabi that Nigeria hoped to boost its oil production to 2.1mb from January when the OPEC deal kicks in.
Nigeria and Libya had been left out of the production cut for their peculiar challenges at their oil fields, while Indonesia had suspended its membership of the cartel.
Kachikwu also stated on Thursday in Abuja that the decision of the groups was sealed at the last minutes when the implementation process was agreed.
He noted that Nigeria’s current production level was around 1.8mb with all three of its main fields online, pointing out that, but for the minor attacks that were recently recorded, production would have gone up to about 2.1mb.
The minister stated that once the country was able to overcome the security issues in the Niger Delta region, it would ramp it production to be able to benefit from the OPEC production cut exemption. He also noted that from potential repairs and natural hazards, there could be an excess 2mb in the market that would take in Nigeria’s increased output when the deal advances.