OPEC Needs Outside Help to Tackle Glut

OPEC Needs Outside Help to Tackle GlutOPEC Needs Outside Help to Tackle Glut

The Organization of Petroleum Exporting Countries aims to shrink the world’s bloated oil inventories with its first production cut in eight years, according to Secretary-General Mohammed Barkindo.

Yet the bloc’s own data show that even the maximum reduction under consideration would barely dent record stockpiles next year. That makes securing help from competitors -- chiefly Russia -- critical to ending the glut, Bloomberg reported.

Global supplies have exceeded demand for three years straight, resulting in the accumulation of an oil-inventory surplus big enough to fill about 160 supertankers. While cutting output to the lower end of the range adopted last month would stop a further expansion, it would curb the existing excess by just 11% next year, the group’s data show.

If the organization fails to make a deal with Russia, there will be a risk of another price collapse, according to Commerzbank AG.

“Would the proposed production range actually reduce brimming global inventories?” said Tamas Varga, an analyst at PVM Oil Associates Ltd. in London. “The signs are not encouraging. Next year will unlikely see the supply-demand balance tighten.”

OPEC agreed on Sept. 28 in Algiers to reduce output to a range of 32.5 million to 33 million barrels a day, and determine how much each member should cut by its next meeting on Nov. 30.

But OPEC’s own data indicate that cutting production to the bottom of the proposed range would only have a superficial impact on stockpiles.

If OPEC reduces output to 32.5 million barrels a day -- a cut of 900,000 a day from September levels -- it would be pumping slightly less than the amount needed to meet demand in 2017, the group’s monthly report from Oct. 12 shows.

Inventories would contract as a result, but only by 36.5 million barrels over the course of the year, a negligible impact on a stockpile surplus the group estimated at 322 million barrels above the five-year average in August.

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