From the ashes of the depressed world arises a new, much more responsive OPEC, eager and willing to take practical steps to safeguard its interests.
It’s compliance to output cuts currently stand at 89 percent, which is historically one of OPEC’s highest-ever levels of adherence to an agreement to limit supply. And this is definitely a sterling performance from the otherwise a wavering OPEC.
And early in February while visiting the US Department of Energy to meet the new Energy Secretary, Algerian Oil Minister Chakib Khelil expressed hope that OPEC’s compliance would reach 100 percent by the group’s next meeting in March.
“Right now, we have very good compliance. We have 85 percent, which is unusual for compliance. By meeting time, we will probably have 100 percent,” Khelil said at the time. This sort of determination has not been witnessed in decades.
Going back into the recent history, this is a definite improvement on OPEC’s part. In the months leading to August 2008, as oil prices began to retreat from over $140 a barrel, OPEC was producing 29.5 million bpd, or nearly 700,000 bpd over the quota of 28.8 million bpd. And thus at OPEC’s September meeting, the output had not changed and the underlining message was to somehow stall overproduction. In October, output was slashed by another 1.5 million bpd to 27.3 million bpd. This was not followed up by another reduction at the November meeting in Cairo. Meanwhile, oil prices continued to fall into the $40-50 range, forcing OPEC to act decisively once again in its Dec. 17 meeting, slashing output by another two million bpd. Abiding to the quota regimen is becoming increasingly critical now.
Greater quota compliance is something new to OPEC, known to be long on words and short on actions. That seems to be changing now. There is a growing realization within OPEC that in case the member states continue to waver with output quotas they face harsher circumstances. The message seems to be sinking in. Based on the Petrologistics estimate for February, the 11 members under the OPEC quota scheme in February pumped just 480,000 bpd more than their collective supply target of 24.84 million bpd that took effect on Jan.1.
That indicates they have delivered on 3.72 million bpd of cutbacks against the 4.2 million bpd, promised since September. Given the varied nature of the requirements of each OPEC member state, divergent geopolitical considerations and conflicting economic interests, this could not be termed too mean an achievement, especially when viewed in the backdrop of OPEC history with quota compliance. This is all the more praiseworthy as some are nursing substantial budgetary gaps too.
Oil would have fallen to $20 without OPEC intervention, says Nawal Al-Fuzaia, Kuwait’s OPEC governor. Talking to the Kuwaiti state news agency he reminded that the oil markets face tough times in 2009 amid the global financial crisis.
“The decisions taken by OPEC in the past few months protected oil prices from a big decline,” Al-Fuzaia, told KUNA. “If it has not been for these decisions, oil prices would have reached $20 a barrel,” he asserted.
Saudi Arabia is definitely leading the way. Riyadh lowered output in February to 7.9 million bpd against its quota of 8.05 million bpd in January, Petrologistics noted.
Iran, OPEC’s second-largest producer behind Saudi Arabia, has also lowered production in February, pumping 3.55 million bpd, down 300,000 bpd from January. However, it was still exceeding the target.
Angola, holder of the OPEC presidency this year, is also implementing more of its share of the reduction, lowering output to 1.65 million bpd in February. Its target is 1.52 million bpd.
Kuwait and the United Arab Emirates are likely to trim supply further in February to 2.26 million bpd and 2.25 million bpd, respectively. In fact the Abu Dhabi National Oil Company is informing some of its customers of its intention to cut oil shipments further in April. ADNOC intends to cut supplies of various grades including Murban by 15 to 17 percent then.
With Iraq’s production at 2.28 million bpd in February, all 12 OPEC members are expected to pump 27.6 million bpd this month, down 1.1 million bpd from 28.7 million bpd in January, the report emphasized.
If OPEC could maintain discipline in its ranks, indeed a difficult proposition due to individual members’ varying requirements, it could go a long way in meeting the challenges of the times and protecting its legitimate interests. After all striving for fair price is no sin.
