15 April 2018, Sweetcrude, Lagos — The International Energy Agency, IEA, has given a thumbs up, for the very first time, to the oil cut agreement by the Organisation of the Petroleum Exporting Countries, OPEC, and its partners.
OPEC and some non-OPEC, especially Russia, in a Declaration of Cooperation, DoC, agreed to cut an output of 1.8 million barrels per day since January 2017.
IEA in a note, described the cuts which had since achieved 163 percent compliance in March, as ‘mission accomplished’.
Oil prices have stabilised at around $70 per barrel, helped by political uncertainty in the Middle East-in Syria and Yemen.
“As far as the OPEC/non-OPEC output cuts are concerned, some countries party to the 2016 Vienna agreement, have, for different reasons, seen production fall by more than they promised”.
“These extra cutbacks total over 800,000 b/d. To all intents and purposes, more than a second Saudi Arabia has been added to the output agreement”.
“The overall state of the cuts in March shows OPEC’s compliance rate at 163% with its non-OPEC partners achieving a rate of 90%. With just under half of global oil supply subject to restraint and oil demand growing steadily, the impact on stocks has been substantial”.
“The text of the Vienna agreement notes that OECD and non-OECD stocks were above the five-year average and states that they should fall to ‘normal’ levels. Normal is assumed to mean, although it does not explicitly say so, the five-year average”.
“There is less clarity with regard to non-OECD stocks, so five-year average OECD stocks have become the de facto target to measure the success of the output cuts”.
“Since May last year they have fallen constantly the average and new data for February show a larger than usual fall in volume terms with stocks now only 30 mb above the five-year level, and product stocks actually below it”.
IEA added that if its calculations go according to plan, global oil stock will fall by 0.6 million barrels per day between the second and fourth quarter of the year, meaning that OPEC and its partners have succeeded in driving oil glut to the barest minimum.
“Our balances show that if OPEC production were constant this year, and if our outlooks for non-OPEC production and oil demand remain unchanged, in 2Q18-4Q18 global stocks could draw by about 0.6 mb/d”.
“With markets expected to tighten, it is possible that when we publish OECD stocks data in the next month or two they will have reached or even fallen below the five-year average target. It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it”.