Saudi Arabia is overcompensating for some of its fellow oil producers even as OPEC members appear to be complying with agreed production cuts.
10 member states are required to reduce their collective output by 1.2 million barrels per day (bpd) starting from January 1 under the OPEC deal that was agreed upon late last year.
S&P Global Platts found members achieved 91 percent of their required cuts for the month of January, or 1.14 million bpd. This agency monitors monthly OPEC production and this disclosure was made as it released its latest survey earlier this week.
“OPEC spent much of the last half of last year talking up this deal. We wanted to see whether they were actually going to walk the walk and not just talk the talk,” Herman Wang, OPEC specialist at S&P Global Platts, said.
“The 10 members that were required to cut production under this deal have achieved 91 percent, 1.14 million bpd, of cutting from October levels, which was where this deal was benchmarked from.”
However, despite the overall cut quote is being maintained, there is no even spread in the rate of compliance. For example, compensating OPEC members, who are under complying, are some countries, specifically Saudi Arabia, Kuwait and Angola, who are over complying with the crude oil production cuts.
For instance, producing well below its allocation of 10.06 million bpd, Saudi Arabia produced 9.98 million bpd in January.
And producing more oil than their quota are other counties, such as Algeria, Venezuela and Iraq. As Iraq’s January output of 4.48 million bpd was well above its quota of 4.35 million bpd (although the report noted Iraq’s output had declined 150,000 bpd from December), the country in particular was singled out by the S&P Global Platts report.
“Saudi Arabia is bearing the brunt of these cuts,” said Wang.
“They are going above and beyond, compensating a little bit for some of their cohorts within OPEC that are not quite in full compliance. Now how long Saudi Arabia is willing to shoulder the burden of these cuts if it proves some of their cohorts are not fully complying with the deal remains to be seen.”
On the other hand, according to Todd Gordon of TradingAnalysis.com, crude oil is about to break out, and the oil services stocks may be the best way for investors to play the rally.
Oil Prices could be kept afloat by President Donald Trump’s tough stance on Iran, Gordon believes despite another U.S. inventory buildup.
Iran has actually upped its crude oil production instead of keeping with the OPEC production cut agreement and Iran is one of the world’s leading oil producers a key OPEC member. But if tensions between the U.S. and Iran rise, that could change.
An oil rally ahead from a purely technical standpoint is seen by Gordon aside of the geopolitics. It has had trouble breaking through $12, observes Gordon, while looking at the USO, the ETF that tracks the oil market. But correspond to crude rising to about $60 a barrel, the ETF could finally break through the $12 mark with recent events, he said.
(Adapted from CNBC)