OPEC’s Barkindo say oil prices will worsen if supply cap agreement fails
Muhammed Barkindo, OPEC’s secretary general has predicted that current instability in oil prices will only worsen if major producers do not reach a credible deal in three weeks to curb output.
A supply cap agreement reached in principle by the 14 member oil cartel and other non-OPEC members including Russia on September 28 have been bogged by disagreements over details of the deal.
Ahead of the ministerial meeting of the organisation scheduled for Vienna on November 30 Barkindo is warning that unless the deal holds, it will be open season for an oil-glutted world.
“Failure to implement the Algiers accord in full and in a timely fashion will, of course, bring some consequences to an already fragile state of the industry,” Barkindo told journalists in an interview on the sidelines of the Abu Dhabi International Petroleum Exhibition and Conference (Adipec).
The Algiers agreement has been threatened by a lack of clarity over the details of the deal, Middle East politics and the influence of non-OPEC members on supply.
OPEC agreed to reduce its output to 32.5million barrels per day from the current production levels of around 33.24million bpd. Nigeria and Libya were exempted from the cuts to ramp up production due to production outages in their countries.
However, Iraq fighting a prolonged war with terrorist group ISIS, Iran emerging from sanctions and keen to maintain a market share and Saudi Arabia who is wary of competition raises concern on the ability to sustain the deal.
“OPEC saying a maximum production of 32.5 million barrels per day is easy, dividing limit between countries and sticking to it is hard,” observed Spencer Welch, oil analyst at IHS Markit.
Prior to the Algiers agreement, Saudi Arabia and its close Arabian Gulf allies, the UAE, Kuwait and Qatar turned on the taps to protect market share and force higher-cost producers including US shale, Canadian oil sands and offshore projects to deal with cuts needed to rebalance the market.
US shale producers cut production by about one million barrels per day from a peak production of 9.6million bpd and prices have kept inventories near ceiling. Oil prices recovered barely from lows of $30 to about $50 but concerns over the deal stumbles prices.
“The rebalancing of the fundamentals of this market has taken a very long time, probably the longest we’ve ever seen,” said Mr Barkindo. “But failure to jointly act with our non-OPEC friends in accordance with Algiers will further elongate this period of instability,” Barkindo said.
Analysts at Goldman Sachs last month stated that even with a deal to freeze output the most likely outcome the higher production from those allowed exception would be enough to keep the market in glut.
“Higher production from Libya, Nigeria and Iraq is reducing the odds of such a deal rebalancing the oil market in 2017,” the bank said in a report assessing the deal.
ISAAC ANYAOGU