The success of the Opec and non-Opec production cut deal ultimately depends on the extent to which it erodes bloated inventories. That depends on compliance and the proof of that pudding will be in the eating.
Today’s Opec Monthly Oil Market Report indicates an impressive over-compliance with pledged cuts. The compilation of secondary source assessments of February production puts it at 31.96mn b/d, down by 140,000 b/d on January, and well below the target 32.68mn b/d. That’s a cut of 2.13mn b/d, compared with a planned cut of 1.17mn b/d.
One swallow doesn’t make a summer – but a self-administered pat on the back would be excusable.
Sharp-suited men in New York, spivs in the City, keyboard warriors in the Australian Outback, the whole global conspiracy of oil market speculators has been rebranded. No longer are they the spawn of the devil, but handmaiden to the achievement of what Opec secretary-general Mohammad Barkindo calls “our common goal of restoring market stability and reviving much needed investment”.
So what’s with Equatorial Guinea applying to join Opec? It’s hard to see commercial logic, or even multilateral scheming. Why pay the membership fee and be tied into current and future production agreements when you can gain kudos from voluntary cuts — as Malabo is now with its 12,000 b/d cut pledge as part of the Opec-Non-Opec collaboration?
When Opec and its non-member allies agreed combined production cuts of some 1.8mn b/d for six months from the beginning of this month to speed market rebalancing, there were going to be two keys to success in pushing prices higher — sentiment and reality.