The market looks to the Opec monthly report for guidance. Over the years since it started at a few faxed pages, rather thin on content, that turned up when it turned up, it has acquired some gravitas, a counterpoint to the IEA report.
Presenting BP’s Statistical Review of 2016 today, chief executive Bob Dudley said: “The oil market returned broadly back into balance by mid-year, but prices continued to be depressed by the large overhang of built-up inventories.”
Dudley’s definition of balance here is a straightforward matching of production and demand. Opec and its partners in output cuts prefer to factor in the inventories that are weighing on prices. And weighing they are. Brent has failed to break above the mid-$50s/bl, despite a disciplined cuts programme that has been in place since the start of this year, and has found itself most comfortable at well below $50/bl — below year-earlier levels — since last month’s agreement to extend the cuts.
This week’s deliberations in Vienna have not done a lot for the near-term oil price — front month Brent is well under $52/bl today, less than 5pc higher than it was one year ago when a production cut was just a twinkle in the eye of the harder-pressed Opec members. Continue reading
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.