Delegates from OPEC and its non-OPEC allies discussed this week potentially changing the metric they use to measure the success of the production cut pact, with most proposals shifting the inventory goal further out in time, Bloomberg reports, citing delegates from the group.
At a meeting in Vienna on Monday, delegates discussed moving the goalposts by possibly adopting a different measure for the global oversupply than they are currently using. The OPEC/non-OPEC deal officially targets a reduction in commercial stocks in OECD countries down to their five-year average. The delegates did not reach any decision this week, and the final decision is in the hands of the energy ministers of the participating countries, who did not attend the Vienna meeting on Monday, Bloomberg reports.
But many of the proposals discussed included moving the average that would make OPEC and friends’ goal harder to achieve. One proposal considered measuring the OECD commercial stocks against the five-year average—like it is now—but suggests taking out years of high inventories from the equation. Another proposal was to use the seven-year average as the primary metric. Yet another discussion was about using a period of more than seven years to measure the inventories in developed economies, according to delegates who spoke to Bloomberg.
Using the longer average period, or not counting the years of the worst glut would make achieving the new average more difficult and could require a longer period of cuts, Bloomberg noted.
OPEC’s de facto leader and largest producer Saudi Arabia has already suggested that they may move the goalposts, and is saying that it is doing whatever it takes to erase the glut, even at the risk of overtightening the market.
According to Bloomberg’s sources, OECD inventories dropped in February to around 44 million barrels above the five-year average, compared to a surplus of 293 million barrels in January 2017.
Earlier this week, OPEC Secretary General Mohammad Barkindo said that although the oil market has been improving, OPEC still has work to do to bring global oil inventories back to their five-year average.
If OPEC and allies do move the goalposts, they may have even more work to do to reach the new target.
By Tsvetana Paraskova for Oilprice.com
