OPEC oil cut deal compliance slipped to the lowest level in six months, as the key oil nations posted increases in oil output levels. What is next for oil?
13 July, AtoZForex – The Organization of the Petroleum Exporting Countries (OPEC) has posted yet another increase in the oil production levels. Such trend contradicts the key aim of the oil bloc – to reduce global oil glut and to boost oil prices. OPEC’s compliance with its promised cuts has dropped to its lowest levels in six months this June.
OPEC oil cut deal compliance drops
Earlier last October, the oil bloc has agreed on the supply cut deal. The oil nations vowed to limit their oil production levels by around 1.8 million barrels per day (bpd). However, the cartel did not meet the goal in time and has prolonged the oil cut agreement for another 9 months. OPEC member states have agreed to extend production cuts by nine months to March 2018 at their 25 May OPEC meeting press conference.
Despite the attempts to revive the oil market, the oil bloc members have faced some obstacles. OPEC’s compliance with the agreed cuts has dropped to 78 percent in June from 95 percent in May. The key contributors to the increase in oil supply are Algeria, Ecuador, Gabon, Iraq, the UAE, and Venezuela. The International Energy Agency (EIA) has stated that the low level of compliance significantly delays the market rebalancing.
Yet, some countries do their best to comply with cuts. Among the best complaints with OPEC oil cuts Saudi Arabia, Kuwait, Qatar, and Angola. However, their efforts are well offset by the high production of other oil nations. The EIA has stated:
“Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement.”
Will US producers decrease oil production levels?
The OPEC nations and several other non-OPEC members, including Russia, have been putting efforts to rebalance the oil market. However, their efforts also meet opposition in the face of high US oil output. In addition, OPEC members Libya and Nigeria do not take part in the OPEC oil cut deal. Their combined increase in the oil output accounts for 700,000 bpd in recent month. According to the EIA:
“For fellow OPEC members, who agreed to reduce production by 1.2 million bpd, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards.”
As of now, the Brent crude oil price stands at $47.79 per barrel.
Previously, the OPEC oil cuts have managed to stabilize the oil at around $45-50 a barrel. Yet, the growing US oil output has been pressuring the oil prices. The EIA analysts believe that the strong demand growth in the second half of the current year and in 2018 should aid OPEC in its mission to boost oil prices. According to the estimates from the agency, the demand for OPEC’s oil will rise through 2017 to reach 33.6 million bpd in Q4.
In addition, the EIA noted that some of the non-OPEC oil nations, such as the US and Canada and Brazil, have been pumping more oil recently. However, the latest decline in the oil price might push some US oil producers to review their output levels.
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