While the oil market is focused on the U.S. inventory draws and crude oil production, OPEC is not letting investors forget the cartel’s jawboning weapon—the ‘deeper/longer cuts’ narrative.
Kuwait’s oil minister Essam al-Marzouq said on Monday that OPEC’s November meeting would discuss the fate of the current agreement--whether it would extend the cuts further or decide to terminate it.
“At our next meeting at the end of November...the most important items will concern the fate of the agreement to extend or terminate the production cut,” Essam al-Marzouq said in an interview with Kuwait TV on Monday, as carried by Reuters.
Meanwhile, OPEC’s committee set up to monitor compliance with the cuts is meeting in Vienna to discuss slipping conformity with the pledges. Citing two sources in the know, Reuters reports that estimates are for a combined compliance of 94 percent for July.
At the July meeting in Russia, OPEC said that the OPEC and non-OPEC signatories to the output cut deal reached a 98-percent compliance in June.
However, according to the IEA, OPEC compliance slipped to 75 percent in July, from 77 percent in June. Compliance within the non-OPEC group of producers party to the cuts was 67 percent. Combined, the 22 producers that have pledged to cut production are overproducing a total of 470,000 bpd, according to the IEA.
Analysts think that compliance will continue to drop as the lower-than-expected oil prices and the slower-than-anticipated market rebalancing would discourage OPEC members from keeping cutting.
The July monthly Reuters poll showed that 33 economists and analysts lowered yet again—for a sixth consecutive month—their oil price forecasts for 2017 and 2018, as the slower-than-expected rate of oil market rebalancing puts an increasing amount of pressure on OPEC’s resolve to stick with the cuts.
According to JP Morgan, OPEC’s compliance with the output cuts will continue to slip in the second half this year, despite recent rhetoric reiterating the cartel members’ commitment to stick to the production quotas.
By Tsvetana Paraskova for Oilprice.com
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