OPEC and non-OPEC members met this weekend to review the agreement to cut oil production this year, by 1.2 million barrels per day. Eleven out of thirteen OPEC countries, and eleven non-OPEC countries are involved in the production cuts which have taken effect from 1st January 2017 and will continue to be in place for the first half of the year. However with recent increases in US shale oil production, what does this mean for the 1.2 million barrel per day cut, and the global oversupply in the market?
This weekend’s meeting seemed to go down well with oil ministers present. Russian Energy Minister Alexander Novak claimed:
Which is positive news, given that at the end of 2016, Mr. Novak was only committed to reducing production as long as all other OPEC and some non-OPEC countries were cutting production. All members included in the agreement seem to be of the same mind that the cut to production is being enforced well. Al-Falih said:
Saudi Arabia have already exceeded their agreed cut of over 500,000 barrels per day, which is most likely due to the fact that it is one of the largest oil producer in the world. Venezuela have managed to cut their production b around 50,000 barrels per day and aim to keep to their agreed cut of 95,000. So far Russia have cut production by around a third of their agreed total at around 100,000 barrels per day which may not have sat well with Kuwait Oil Minister who “would not accept anything less than 100% compliance.” Furthermore Iraq Oil Minister announced that they would fulfil 90% of its agreed cuts, which is not particularly reassuring. There has been a history of OPEC members deviating from agreed cuts after only a few months of curtailing production. It seems that this may continue.
The meeting seemed to create an air of confidence that all members and non-members would successfully reduce production of oil as per their agreed terms. However as President Trump took over as US President on Friday, and his aim to continue to drill shale oil and gas is causing markets to shift. It seems that whenever oil prices improve, reports emerge of Trump’s plans to become energy independent, or that US oil rig counts are increasing. This is reducing oil prices as US drilling is only adding to the oversupply in the global market. Oil ministers discussed the impact of US shale oil, however it was agreed that the increase in oil production in the US would be consumed to meet rising demand. The next OPEC meeting will review the production levels once more in a few weeks’ time.
Sources: Reuters, Bloomberg, OPEC, BBC News, the Guardian, EDF, Gazprom Energy, SSE, Npower (RWE), Engie