Energy

Julian Lee is an oil strategist for Bloomberg First Word. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

The shift to the global oil order that happened at the end of 2016 may not be as sticky as you think.

OPEC's Nov. 30 deal in Algeria turned oil market expectations for 2017 on their head. Instead of a fourth straight year of rising global oil inventories, stockpiles look set to actually shrink.

The plan was to cut output by nearly 1.2 million barrels a day in the first half. That agreement was followed by a pledge from a group of non-member countries to trim their production by almost 560,000 barrels a day. This is still what's expected.

What a Difference a Deal Makes
OPEC's end-November output deal has changed the IEA's outlook from stockbuilds to draws in 2017.
Source: Bloomberg, International Energy Agency
NOTE: Positive numbers show crude inventory builds, negative ones show inventory draws. NOTE: The IEA revises data as new information becomes available, this may change numbers several years in the past.

These deals led the International Energy Agency and others to forecast that the long-awaited oil market rebalancing could begin almost immediately. But, as the agency warns, only if the agreement is implemented in full.

OPEC's members seem fully committed to the cuts, but, as I've written, the biggest threat could come from those countries who were left out of the deal. OPEC members Libya and Nigeria were exempt from the cuts and both have already made progress in restoring output curtailed by unrest.

Undermining OPEC Efforts
Restoring output in Libya and Nigeria could seriously erode the effectiveness of OPEC's output cut.
Source: Bloomberg
NOTE: The output increases for Libya and Nigeria reflect preliminary data for November and government targets thereafter.

If they meet their ambitious plans for further increases in the coming months they could seriously undermine the efforts of their fellows.

That could jeopardize the foundation of the November agreement and leave OPEC and its allies needing to consider a further cut even before the last one is fully implemented.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Julian Lee in London at jlee1627@bloomberg.net

To contact the editor responsible for this story:
Jennifer Ryan at jryan13@bloomberg.net