Energy
0

50% Compliance With OPEC Cuts Acceptable

Oil prices are less than half their peak levels in 2014.Oil prices are less than half their peak levels in 2014.

OPEC is unlikely to deliver fully on its target to cut production despite Saudi Arabia saying it had trimmed more than it had committed to, OPEC delegates say, but compliance of 80% would be good and as low as 50% acceptable.

The Organization of the Petroleum Exporting Countries is planning to cut its output by 1.2 million barrels per day to 32.50 million bpd from Jan. 1. Russia and other non-members are planning to cut about half as much, Reuters reported.

OPEC and the independent producers are cutting supplies to remove a global glut and prop up prices, which at $56 a barrel are half their level of mid-2014, hurting the revenue of exporting nations.

"Compliance won't be 100%, it never is," said an OPEC source, who added that an overall rate of 50% to 60% would be good enough, based on past compliance levels.

Top exporter Saudi Arabia and Kuwait said on Thursday they had cut production by more than they committed to. Kuwait, the head of a committee to monitor compliance which meets on Jan. 22, said this was to "lead by example".

But OPEC as a whole has a patchy record of complying with its agreements, and previous non-OPEC pledges to curb output have proved largely token. Compliance is voluntary as OPEC has no mechanism to enforce its agreements.

Based on statements by producing nations so far, there has been over 60% compliance, Kuwait's oil minister said on Thursday. Last time OPEC cut its output, in 2009, following agreements the year before, it initially made 60% of the reduction and compliance peaked at higher rates, according to estimates from the International Energy Agency and other analysts, some of whom see that as a reasonable target this time.

"We should see 60-70% compliance once again," Daniel Gerber of Petro-Logistics, a consultant which assesses OPEC supply by tanker tracking, told Reuters in December.

The cuts in 2009 were more than OPEC achieved in previous price collapses, such as during the late 1990s when countries initially did not follow through on pledges. OPEC's historical average compliance rate is 60%, according to the IEA.

"Normally for OPEC, good compliance is near 80%," said another OPEC delegate. "It won't be 100%."

Add new comment

Read our comment policy before posting your viewpoints

Financialtribune.com