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Oil Prices: OPEC+ pact may have averted crude glut
OPEC producers cut back sharply during December before their next reductions were due to take effect. Saudi Arabia did the heavy lifting, making curbs that allowed the organization’s 14 members to eliminate somewhere between 580,000 and 840,000 barrels a day of supply.
Oil producing states in OPEC and beyond are going to prevent a buildup of global crude inventories in the first half of this year—assuming they can resist the temptation to cheat on a December pact to restrict supplies.
That’s the main takeaway from supply-and-demand studies of the oil industry’s most-watched organizations: the International Energy Agency, the U.S. Energy Information Administration, and the Organization of Petroleum Exporting Countries. This story will monitor and compare the evolution of the three agencies’ key market interpretations on an on-going basis.
The main agencies’ implied supply-demand estimates for the first half of 2019 are set out in the chart below. Output curtailments in December — before OPEC and allied producers embarked on a fresh plan to curb production starting this month—already slashed the implied surplus in the first half of this year to about 750,000 barrels a day (the green columns).
The months listed are the report months. So, for example, in August the IEA’s January-June implied surplus was 590,000 barrels a day. By November, that rose to 2 million barrels a day. Why such wild fluctuations? In short, because of OPEC. The group’s members coordinate supply actions, making their output almost impossible to forecast. For that reason, the graphic below projects forward each agency’s most recent OPEC output figures to generate the future supply-and-demand balance. And those can be highly volatile—as the second graphic in this story will show.
To calculate where all that leaves balances if OPEC and its allies make good on their Dec. 7 pledge to restrict supply, the graphic above also incorporates a ‘full cut’ figure. This deducts the barrels that the producer group and its allies pledged to remove from the market in the first half of 2019. If the cuts are implemented in full, the IEA’s data imply the surplus shrinking to just 80,000 barrels a day, the EIA’s figures peg that at a more substantial 360,000 barrels, while OPEC’s own numbers point to a shortage of 100,000 barrels a day. In all cases, it’s assumed that there are no further declines in production from Iran, Libya and Venezuela, which were exempt from the cuts agreed in December.
OPEC producers cut back sharply during December before their next reductions were due to take effect. Saudi Arabia did the heavy lifting, making curbs that allowed the organization’s 14 members to eliminate somewhere between 580,000 and 840,000 barrels a day of supply, according to the three agencies.
Along with a strong track record of compliance with prior cuts and Saudi Arabia’s clear verbal commitment to balancing the oil market, last month’s restrictions suggest supply and demand are likely to be roughly in balance, according to the IEA, EIA, and OPEC.
Things become less predictable outside OPEC. Those countries who aren’t in the producer group—but pledged to restrict supplies—became increasingly unwilling to stick to the previous pact, which was struck in late 2016. By December, the final month of that accord, they had all but abandoned conformity. Only time will tell if the latest deal will bring with it a renewed zeal to comply.
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