OPEC Plus: December Oil Market Update
OMAHA, Neb. (AP) — OPEC says it is sticking to plans to keep oil output unchanged beyond March after recent results in negotiations with several non-OPEC producers prove they can stand on their own feet.
The 12-nation Organization of the Petroleum Exporting Countries, along with the 10-nation Russian Energy Ministry, issued a statement Tuesday reiterating decisions made in Algeria in September.
The OPEC-Russia agreement was to limit crude output by a combined 1.8 million barrels a day in order to bolster prices and reduce the global inventory overhang. The cartel wants to eliminate the enormous surplus of crude that built up in the past few years.
However, meeting this week in Vienna, the cartel and its allies failed to reach an agreement on the level of output cut they would agree to by the end of March.
Industry analysts say the ongoing lack of progress could lead OPEC to extend their arrangement.
But officials from top producer Saudi Arabia seem open to giving other countries more time.
“Those partners (producing outside the OPEC-Russia agreement) who have contributed to the agreement have done more than expected to reach a compromise,” Saudi Energy Minister Khalid al-Falih said at a gathering of OPEC and other oil producing nations.
Nigeria and Libya, who didn’t sign onto the agreement but have massive production problems, were granted special exemptions that allow them to pump more oil for six months. But Nigeria has said production isn’t sufficient to make up for the suspension of its oil exports in recent months by attacks on Nigerian pipelines.
OPEC states that high oil prices pose a threat to the overall economic outlook in the United States and its ongoing energy boom. U.S. oil production is up nearly 11 percent in the past year to a record above 9 million barrels a day. A positive impact for energy consumers and small businesses has mostly gone unnoticed as oil prices ticked higher in recent months. But that could be headed for a big drop in the second half of 2018, an OPEC report warned this week.
OPEC insists that high oil prices will lead producers to quickly replace crude production that has been taken offline by wars and political unrest, threats to pipelines and other accidents. But the International Energy Agency, a Paris-based trade group that gathers energy data from the IEA and other organizations, sees little evidence that more production is coming.
Its latest outlook of global oil demand shows another surge in consumption in coming years and significant increases in prices per barrel for long-term contracts, IEA Chief Economist Fatih Birol told reporters ahead of the meeting.
“That clearly means that prices are going to be high and not especially coming down in the next two years,” Birol said.
The global supply-demand situation in 2018 isn’t going to tighten the way the cartel wants it to, the IEA said in a report released Monday.
Those low prices and the political instability that seems to be attracting oil and gas investment to Russia instead of the United States suggests that OPEC’s current output-lowering strategy may only weaken longer-term prospects, the IEA said.
After years of price highs, there is an appetite among both consumers and producers for lower oil prices, the IEA’s Birol said. As a result, supply cuts to help drain excess inventory are clearly working as OPEC and its supporters have intended, he said.
Saudi Arabia, OPEC’s largest country, has said it is prepared to help trim some production with other countries if needed, with countries that haven’t agreed to the oil supply cut talks this week in Vienna including Iraq, Qatar, Nigeria and Iran.
Russia, an oil producer that increased its oil output 3.9 percent in 2017 and seems to have been a rock in the OPEC talks, is concerned that a substantial drawdown in global inventories might jeopardize Russia’s own economic health, oil traders said Tuesday ahead of the meeting. A decline in oil prices could slow down economic growth in Moscow.
Russian President Vladimir Putin said this month that Russia wants “clarity” on the level of oil production reductions that may be foreseen once the global inventory overhang is eliminated.
“It is the lifeblood of our economy,” he said, “so we will do everything we can to ensure that oil remains at a stable price level.”
But Russian Energy Minister Alexander Novak said Monday that “given the current level of prices, we are happy with a fixed volume in oil output.”
And on Tuesday, he warned that if OPEC fails to reach an agreement on reducing output, “Then Russia could follow.”