OPEC Signals No Big Changes to Supply Deal at Russia Meeting

  • Libya, Nigeria output caps plus deeper cuts off the agenda
  • Saudi Minister urges renewed focus on compliance with deal

UAE Minister Sees Lower Oil Stockpiles Next Quarter

OPEC and its allies indicated they weren’t planning any big changes to their supply deal, even as oil prices remain below $50 a barrel amid growing skepticism that their output cuts are working.

Capping rising oil production from Nigeria and Libya -- both exempt from the current agreement -- won’t be on the agenda at the meeting on Monday in St. Petersburg, Russia, said two people familiar with the planned talks. There’ll be no discussion of deeper cuts, Saudi Minister of Energy and Industry Khalid Al-Falih told reporters before the gathering.

Khalid Bin Abdulaziz Al-Falih

Photographer: Simon Dawson/Bloomberg

Without any changes on that scale, the Organization of Petroleum Exporting Countries, Russia and their allies will be doubling down on a bet that rising demand will combine with the existing curbs to rapidly deplete fuel stockpiles, buoying prices in the second half of the year. That could prove to be a risky wager if production from nations not bound by any restrictions, notably U.S. shale producers, keeps growing to fill the gap left by OPEC.

“Of course, rising output from Libya and Nigeria increases market supply,” Russian Energy Minister Alexander Novak said in an emailed statement on Sunday. “But at the same time we have to remember that demand for oil is also quite high, and the countries that supported the stabilization initiative have been very assiduous in honoring their commitments.”

Meager Gains

Oil slumped into a bear market last month and Brent crude, the international benchmark, is trading at about $48, a gain of less than $2 since the cuts were agreed on last year. While demand will be almost 2 million barrels a day higher in the second half of the year compared with the first six months, according to OPEC estimates, rising supply inside and outside OPEC suggests the cuts won’t put a significant dent in bloated global inventories.

Libya and Nigeria are a big part of the problem. The African nations, granted an exemption last year from cutting because their output had already been reduced by internal strife, added 440,000 barrels a day of production in the last two months according to data compiled by Bloomberg. That’s equivalent to about a third of the reductions implemented by fellow OPEC members.

That recovery prompted speculation that OPEC would seek to limit their production at the St. Petersburg talks. Now most other producers appear to accept that would be premature.

"We remain supportive of our brothers and partners in both those nations" as they recover, said Al-Falih. "The committee however should monitor the impact of such growth in supply on global supply-demand balances."

Compliance Pressure

Nigeria is ready to cap or even reduce supply if it can maintain output of 1.8 million barrels a day, said the two people, asking not to be identified because the information is confidential. Its production hasn’t risen that high since February 2016 and despite the nation’s success ending militant attacks, oil theft is still hurting output.

Libya isn’t planning to join any agreement to curb output until it reaches its target of 1.25 million barrels a day by December, the people said. That’s almost 50 percent above its average June production of 840,000 barrels a day.

The Saudi minister suggested he was pushing to improve implementation of the production cuts from the nations already participating in the deal. Compliance dropped to 92 percent in June from 110 percent in May, according to people familiar with OPEC’s internal data. Iraq implemented just 28 of its pledged cuts.

"Some countries continue to lag" in their compliance "which is a concern we must address head on,” Al-Falih said. "Exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data in our monitoring."

The Joint Ministerial Monitoring Committee meeting in St. Petersburg will consider a proposal, which initially came from Kuwait and is strongly supported by the Saudis, to monitor crude exports in addition to production figures, according to three people with knowledge of the talks.

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