OPEC's attempt to bolster crude oil prices by cutting output are now largely an exercise in self-deception, with recent production and export numbers laying bare the group's shortcomings.
OPEC’s attempt to bolster crude oil prices by cutting output are now largely an exercise in self-deception, with recent production and export numbers laying bare the group’s shortcomings.
While the Organization of the Petroleum Exporting Countries may be able to claim relatively high compliance with its plan to lower output by 1.2 million barrels per day (bpd), this is ultimately just a smokescreen.
Of far more importance is evidence that the group actually exported more crude in the first six months of this year than it did in the first half of 2016.
OPEC exports jumped to 25.92 million bpd in June this year, up 450,000 bpd from May’s 25.47 million bpd, according to vessel-tracking and port data compiled by Thomson Reuters Oil Research.
Over the first six months of this year OPEC exports averaged 25.02 million bpd, up 290,000 bpd from the same period in 2016, according to the data.
OPEC may be able to claim a small win insofar as the group’s exports have dropped from the second half of 2016, when they averaged 25.14 million bpd.
But this is a tiny reduction from what was a period of near record output for the group, and in some ways actually only underscores the lack of success OPEC has had so far this year in restricting exports.
The rise in OPEC exports in the first half does look at odds with the cuts the group has made to production, with the 11 members that committed to lowering output achieving 92 percent compliance with their targets in June, according to a Reuters survey.
But the vessel-tracking data show the crude market is getting as much oil from OPEC as it had been prior to the November deal.
The problem for OPEC is that while some members have indeed cut both output and exports, others haven’t.
The group’s biggest producer Saudi Arabia exported an average 7.28 million bpd in the first six months of 2017, according to the shipping and port data.
This was down 350,000 bpd on the same period last year, meaning the kingdom has actually reduced exports by a figure relatively close to its pledge to lower output by 486,000 bpd as part of the producer agreement.
However, exports from the United Arab Emirates have risen to an average 2.8 million bpd in the first half of this year from 2.52 million bpd in the same period in 2016.
Those from Iran have gained 450,000 bpd to 2.13 million bpd in the first half of this year, as the Islamic Republic boosts exports after the lifting of Western sanctions in the wake of an agreement on its nuclear programme.
While Libya isn’t party to the output-cutting deal, its exports have risen from an average 243,000 bpd in the first half of 2016 to 553,000 bpd this year as the North African producer slowly recovers from its debilitating civil conflict.
With the first six months of the deal to cut output now having passed, a few things are clearer.
The first is that even if there has been good compliance with restricting output, this hasn’t translated to lower exports from OPEC.
Secondly, the heavy lifting is being done mainly by Saudi Arabia, which begs the question as to how long it will be willing to shoulder the burden of being the driver of efforts to balance the oil market.
Thirdly, if there is to be a supply-led rebalancing of the oil market, OPEC and its allies will likely have to do more, or at least reduce actual exports by the joint 1.8 million bpd, rather than the harder-to-quantify measure of production.
The price of global benchmark Brent crude has recovered from its recent low of $44.35 a barrel on June 21, closing at $49.61 on Tuesday.
But it is more or less at the same level that prevailed before the Nov. 30 output cut was announced, meaning OPEC and its allies only achieved a relatively short boost to prices.
In retrospect this isn’t surprising in the light of data showing the group’s exports rising in year-on-year terms in the first half, but it should give OPEC’s leaders much pause for thought.
“Lying to ourselves is more deeply ingrained than lying to others,” wrote 19th century Russian novelist Fyodor Dostoyevsky.
Perhaps OPEC needs to stop trying to convince itself and others that its output cuts are working, and either abandon the tactic or amend it to make it genuinely effective.
- By Clyde Russell
(The opinions expressed here are those of the author, a columnist for Reuters)