Need For Oil Supply Cuts Now Almost Permanent – Expert

Need For Oil Supply Cuts Now Almost Permanent – Expert

The need for oil supply cuts is now almost permanent due to increasing output from Nigeria, Libya and the US, Spencer Welch, director of the oil markets and downstream team in the London-based IHS Markit, told Trend Aug.10.

“In truth, the need for the supply cuts has gone on longer than most of the participants originally anticipated. This was supposed to be quick nudge to re-balance the market. The production increases from Nigeria, Libya and US mean that the need for the supply cuts is now almost permanent,” said the expert.

The oil markets are already re-balanced, the issue is that stocks are barely falling and the supply cutters aim to get global oil stocks down to 5-year average levels by end 2017, this is unlikely to be achieved, according to Welch.

“The message to the oil markets is that OPEC and Saudi are trying to sustain the supply cut deal, which is vital if their objectives are to be achieved,” he added.

Commenting on the meeting between Saudi Arabia's energy minister Khalid al-Falih and Iraqi oil minister Jabar al-Luaibi, the expert noted that this is fairly significant, because Iraq is a key contributor to the supply cut deal and their compliance has been falling, to less than 30 percent of promised cuts delivered.

“It is unlikely that the others, particularly Saudi, will tolerate this for long. Saudi has always said the cuts had to be a team effort and those lagging in compliance would not be tolerated and must be addressed head-on. So Iraq’s role is key, because continued low compliance threatens the whole deal,” said Welch.

Earlier, Khalid al-Falih posted a picture of himself on Twitter greeting Iraqi oil minister Jabar al-Luaibi and said the two had discussed "the importance of uniting the efforts of all countries for market stability".

On May 25, OPEC member countries and non-OPEC parties, Azerbaijan, Kingdom of Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Mexico, Sultanate of Oman, the Russian Federation, Republic of Sudan, and the Republic of South Sudan agreed to extend the production adjustments for a further period of nine months, with effect from July 1, 2017.

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