OPEC sees rivals’ output rising as it over-delivers on cuts

A flag with the Organization of the Petroleum Exporting Countries (OPEC) logo is seen before a news conference at OPEC's headquarters in Vienna, Austria, in this December 10, 2016 file photo. (REUTERS)
Updated 13 April 2017
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OPEC sees rivals’ output rising as it over-delivers on cuts

LONDON: The Organization of the Petroleum Exporting Countries (OPEC) cut oil output in March by more than pledged under a supply reduction deal and said oil inventories had fallen in February, suggesting that its effort to clear a supply glut that has weighed on world oil prices is succeeding.
But OPEC also raised its forecast for supplies from non-member countries in 2017 as higher oil prices encourage US shale drillers to pump more, reducing demand for OPEC’s oil this year.
OPEC is curbing its output by about 1.2 million barrels per day (bpd) from Jan. 1 for six months, the first reduction in eight years, to get rid of a supply glut. Russia and 10 other non-OPEC producers agreed to cut half as much.
Oil prices pared gains on Wednesday after OPEC released its monthly report to trade at around $56 a barrel. Prices are still up from about $42 a barrel a year ago, and OPEC was upbeat on the outlook for the market.
“Despite some downside risks, general expectations for demand growth for oil products in the coming months remain bullish,” said the report, which made a minor upward revision to its global demand forecast this year.
“The return of refineries from seasonal maintenance and healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability and reduce the volatility seen in recent weeks.”
In the report, OPEC pointed to an increase in its members’ compliance with the deal and said oil stocks in industrialized nations fell in February — although they are still 268 million barrels above the five-year average.
Supply from the 11 OPEC members with production targets under the accord — all except Libya and Nigeria — fell to 29.761 million bpd last month, according to figures from secondary sources that OPEC uses to monitor output.
That means OPEC has complied 104 percent with the plan, according to a Reuters calculation. OPEC did not publish a compliance number, but OPEC figures seen by Reuters on Tuesday also put adherence at 104 percent.
But OPEC revised up its estimate of oil supply growth from producers outside the group this year to 580,000 bpd, as higher oil prices following the supply cut help spur a revival in US shale drilling.
“With the pick-up in drilling activity, as well as increasing cashflows in the tight oil industry, US tight crude output is expected to rise quickly and increase 335,000 bpd for the overall of 2017,” OPEC said, using another term for shale.
OPEC said its production, including Nigeria and Libya, fell about 150,000 bpd in March to 31.93 million bpd, as Saudi Arabia continued to make a larger cut than called for by the deal.
Due to the higher expectations from outside producers, OPEC trimmed forecast demand for its crude in 2017 to 32.22 million bpd — 130,000 less than last month but more than current production, suggesting stocks will drop if output does not rise.
A further rise in supply outside the group could weigh on prices and hinder OPEC efforts to clear the glut, although OPEC officials have said they believe the market can deal with renewed shale growth.


World Bank shareholders approve $13 billion capital increase

Updated 22 April 2018
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World Bank shareholders approve $13 billion capital increase

  • Capital increase follows three years of negotiations
  • Increase of $7.5 billion for main institution and $5.5 billion for IFC

World Bank shareholders approved a “historic” increase in the bank’s lending capacity late on Saturday after the United States backed a reform package that curbs loans and charges more for higher income countries like China.
World Bank President Jim Yong Kim said neither China nor any middle income countries was happy about the prospect of paying more for loans, but they agreed because of the overall increase in funds available.
The agreement, which also increase shares and voting power to large emerging market countries like China, was “a tremendous vote of confidence” in the institution that came after three years of tough negotiations, Kim said.
“World Bank Group bureaucrats don’t often jump around and high-five and hug each other,” Kim told a small group of reporters following the Spring meeting.
He said the increase was needed because even with the end of the global financial crisis, the bank has been called on to provide funding to address a new series of challenges facing poor countries, like climate change, refugees, pandemics, “all new things for us.”
The increase provides an additional $13 billion in “paid in” capital: $7.5 billion to the main institution and $5.5 billion to the bank’s private financing arm, the International Finance Corporation.
Kim said the increase will allow the bank to ramp up lending to an average of $100 billion a year through 2030, from $60 billion in 2017 and an expected $80 billion in 2018.
Countries will have five years to provide the funds, but can ask for a three-year extension. The last increase occurred in 2010 and added $5 billion to the bank’s capital and $200 million for the IFC.
The United States, the institution’s biggest shareholder, rejected the World Bank request in October and the administration of US President Donald Trump has argued that multilateral lending institutions should graduate countries that have grown enough to finance their own development, like China.
But US Treasury Secretary Steven Mnuchin on Saturday said Washington supports the increase because of the reforms to lending rules.
“I look at this as a package transaction... we support a capital increase on the World Bank, along with the associated reforms that they’re talking about making,” Mnuchin told reporters.
The increase requires legislative approval, but Mnuchin said he was hopeful Congress would back the plan. Kim also said he has had contact with representatives from both parties and received strong support.
In a statement to the World Bank’s governing committee, Mnuchin applauded the plan to “significantly shift lending to poorer clients.”
While he did not mention China by name, Mnuchin applauded the shift to a “new income-based lending allocation target and the re-introduction of differentiated pricing” for loans — meaning wealthier countries would pay higher interest rates.
“The latter will incentivize better-off, more creditworthy borrowers to seek market financing to meet their needs for development,” he said.
Mnuchin said the new arrangement, including for the IFC, “frees resources for countries that don’t have sustainable access to private capital markets.”P
China’s Vice Finance Minister Zhu Guangyao said Beijing supported increasing World Bank resources but had reservations about the agreement for changes in lending policies.
“We are concerned about some of the policy commitments in the capital package, such as those on graduation, maturity premium increase for loans and differentiated loan pricing based on national income per capita,” he said in a statement.
“We hope that the management take different national circumstances into full account in the implementation of the graduation policies... to ensure that these policies will not impede cooperation between the (bank) and upper middle income countries.”
Kim acknowledged that lending to China would decline, but only gradually. That means “whatever borrowing they do has to be as impactful as possible.”
And he noted that because of the capital increase, “we will be able to maintain volumes for middle income countries as a whole.”
Zhu said the capital increase is “a concrete measure to support multilateralism” at a time when “anti-globalization sentiments, unilateralism, protectionism in trade” were creating uncertainties in the global economy.