Opec: Oil cuts deeper than expected

Crude higher: The low-temperature isomerisation unit at the Novokuibyshevsk oil refinery plant, operated by Rosneft PJSC, in the Samara region of Russia. International oil prices rose to an 18-month high of more than US58 a barrel after Opec and several non-members agreed on Dec 10 to cut output. – Bloomberg

LONDON: The Organisation of the Petroleum Exporting Countries (Opec) and Russia said they are ahead of schedule implementing their historic agreement to curb oil output and boost prices.

Saudi Arabia, Algeria and Kuwait have already made deeper cuts than required, while Russia has been able to reduce supply faster than expected, ministers from the countries said as they arrived in Vienna on Saturday. Producers have already removed 1.5 million barrels a day from the market, according to Saudi Minister of Energy and Industry Khalid Al-Falih.

“We are ahead of schedule and we will continue,” Russian Energy Minister Alexander Novak told reporters in the Austrian capital on Saturday. “We are doing our best to maximise participation in the fulfillment of the agreement.”

Saudi Arabia, Kuwait, Qatar, Algeria and Venezuela are meeting counterparts from non-Opec nations Russia and Oman to figure out ways to verify that the 24 signatories to Dec 10 accord are following through on their pledge to remove a combined 1.8 million barrels a day from the market for six months. They intend to prove the group is serious about finally eliminating a three-year crude oversupply and dispel skepticism stemming from previous unfulfilled promises.

International oil prices rose to an 18-month high of more than US$58 a barrel after Opec and several non-members agreed on Dec 10 to end two years of unfettered production and instead cut output. Crude has since slipped about 5% from that peak as traders await proof that they will follow through.

Ministers held an informal dinner Saturday evening before gathering at Opec headquarters for the first official meeting of the monitoring committee Sunday morning.

With January not yet complete, the committee will initially focus mostly on how compliance will be assessed rather than producing any new data, said one person. As outlined in Opec’s initial agreement, monthly production data known as “secondary sources” compiled by analysts in the group’s secretariat will be the principal tool for judging whether members are complying with the deal, said three people. Those figures don’t cover non-members such as Russia.

The committee will consider whether to monitor exports in addition to output and will meet again in February, Algerian Energy Minister Noureddine Boutarfa said in an interview. The committee currently has no plans to use external agencies, such as consultants that track oil exports by monitoring tanker movements, to verify that countries are implementing the pledged supply curbs, said three people familiar with the matter.

There’s no indication that the cuts will need to be extended beyond the initial six-month term, Boutarfa said, echoing comments from his Saudi counterpart earlier this week.

“If we really comply by 80% to 90%, it may not be necessary to continue,” Boutarfa said. “We aren’t excluding it, but signals are positive.”

Opec’s production fell by 220,900 barrels a day to 33.085 million a day in December, led by declines in Saudi Arabia and Nigeria, according to secondary sources data in the group’s monthly report published on Jan 18. The organisation agreed to reduce its output to 32.5 million barrels a day, although that total included about 740,000 barrels a day from former member Indonesia.

Russia has already reduced production by an average of 100,000 barrels a day, a milestone it hadn’t expected to reach until next month, Novak said. The largest producer involved in the cuts agreement said it would make a daily reduction of 300,000 barrels by April or May. – Bloomberg

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