OPEC officials this week hailed the “excellent” and “unprecedented” implementation of their agreement to cut oil production, but were still waiting for solid evidence that the deal was fulfilling their key measure of success and shrinking the global glut.
A reduction in the amount of oil held in storage around the world is the most important factor for the Organization of Petroleum Exporting Countries, Qatar’s Energy Minister Mohammed Al Sada said at the IP Week conference in London Wednesday. The pace of that decline will determine the group’s next move, including whether to extend the accord beyond its initial six-month term, said OPEC Secretary-General Mohammad Barkindo.
The most reliable data available so far on inventories -- crude held in commercial storage in the US -- is going in the opposite direction. Stockpiles in the world’s largest oil consumer have risen every week since OPEC began cutting on January 1, while data on global storage levels has yet to be published.
“The market has been positively surprised by the high levels of compliance to this deal,” Jens Pedersen, senior analyst at Danske Bank A/S, said. “The trend in inventories recently has been upwards and quite relentless. The market will be a bit careful to rally further if inventories are still building.”
Brent crude has risen more than 20 per cent since OPEC agreed last year to cut production, a deal that was joined later by Russia, Mexico and several other non-members. Even as the group’s initial compliance with the accord exceeded expectations, the price rally stalled in the mid-$50s as US crude stockpiles surged to the highest level in more than three decades and oil drillers deployed the most rigs since October 2015.
The OPEC agreement is working, compliance will increase from 90 per cent to 100 per cent and oil inventories will drop this year, Barkindo said.