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World News See other World News Articles Title: The OPEC+ Oil Deal Is Standing on One Wobbly Leg The OPEC+ Oil Deal Is Standing on One Wobbly Leg Saudi Arabia is bearing a greater burden for production cuts, while Russia is nowhere near the reductions it promised. That arrangement can’t last. By Julian Lee February 17, 2019, 12:00 AM CST If only OPEC+ were this stable. Standing on One Leg Saudi Arabia's planned output cut will leave production in March at its lowest in more than four years, while Russia's remains near its record high What was a shock, though, was a more recent comment that Saudi Arabia would go even further next month and slash production to 9.8 million barrels day. That would take it to its lowest level since February 2015. Russia’s performance has been rather different. Oil Minister Alexander Novak said at the time of the deal that the country’s promised 230,000 barrel a day cut would be implemented smoothly over the first quarter, with January’s output 50,000-60,000 barrels below the October baseline. It didn’t even manage to reach that modest target – the cut was just 42,000 barrels, according to Bloomberg calculations. Russia’s slowness in implementing its cut earned it public criticism from the Saudi oil minister and prompted a statement from OPEC Secretary-General Mohammad Barkindo urging all countries to achieve their obligations “in full and in timely fashion.” The rebuke prompted Novak to say that Russia is accelerating implementation of its cuts and that "the average February level should be at least 150,000 barrels lower than in December.” But Russia’s production rose between October and December and the reduction from the October baseline will be 120,000 barrels, or less than half of what the country pledged. It may not reach its target until May, just a month before the current deal expires. Patchy Compliance in January Though some countries exceeded goals for output cuts, in volume terms, Saudi Arabia's reductions were almost as much as all other participants combined This could make little difference to the broader market – provided Saudi Arabia is willing to bear a greater burden so that the OPEC+ group as a whole still meets its target. Back to the water skiing. I haven’t been out behind the boat for the past couple of weeks because, by putting too much of my weight on my back foot, I strained my left calf muscle. My right leg didn’t protest at bearing the extra burden and it got me from one end of the lake to the other. But then it came to the point where it said “no more,” and the skiing had to pause. Similarly, the Saudi-Russian “bromance” may not survive this latest test. Does it matter? Bad for Balance Higher U.S. oil production forecasts raise pressure on OPEC to restore balance to the market Sources: Bloomberg, OPEC, IEA Well, it looks like the OPEC+ group is going to need to extend its output restraint in the face of soaring U.S. production and weakening global demand growth. The three main forecasting agencies – the International Energy Agency, the U.S. Energy Information Administration and OPEC – all cut their assessments of the world’s need for the latter’s oil in their latest monthly reports, published last week. Unless somebody lights a rocket under demand growth — and even a U.S.-China trade deal may not be enough to do that — the OPEC+ output agreement is going to need at least two strong legs to stand on. Without them, like me on my water ski, the group’s hopes of buoying oil prices risk collapsing into chilly waters. Poster Comment: Interactive charts at source. Post Comment Private Reply Ignore Thread
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