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OPEC Warns Members to Comply With Oil-Production Cuts

26 Mar 2017 11:02 am
By Michael Amon 

OPEC officials on Sunday urged member nations to cut their oil production in line with an agreement last year, warning that the petroleum market would remain depressed if they didn't.

Members of the Organization of the Petroleum Exporting Countries, the 13-nation oil cartel that controls a third of global production, need to take compliance with a cut of 1.2 million barrels a day "very seriously, " said Kuwaiti Oil Minister Issam A. Almarzooq, chairman of the group's committee overseeing compliance.

"More has to be done," Mr. Almarzooq said in a speech distributed by OPEC. "We need to see conformity across the board. We assured ourselves--and the world--that we would."

Oil prices rose 20% initially after OPEC's production-cut deal was announced Nov. 30 and those gains were sustained when 11 countries outside the cartel, including Russia, the world's largest producer, joined the effort with pledges to cut a total of 558,000 barrels a day.

But oil prices have fallen in recent weeks as doubts grow among oil traders that OPEC's cuts are enough to bring a vast oversupply of petroleum back in line with demand. On Friday, the price of Brent, the international benchmark, was at $50.80 a barrel, while West Texas Intermediate, its U.S. equivalent, was trading at $47.97.

Overall, OPEC has cut close to its target of 1.2 million barrels a day, but individual countries have fallen short of their pledges. The United Arab Emirates, for instance, has pledged to cut 139,000 barrels a day but in February had only reached 87,000 barrels a day of cuts.

OPEC has said non-OPEC producers have been even less compliant. Russia, which pledged 300,000 barrels a day in cuts, has delivered only about a third of that, according to the International Energy Agency. Russia has said it would reduce its output gradually this year.

Saudi Arabia, OPEC's biggest producer, has picked up the slack, cutting about 800,000 barrels a day--far more than the 486,000 barrels a day it promised. But the kingdom's energy minister, Khalid al-Falih, has said it won't support "free riders" indefinitely.

OPEC is assessing compliance in the run-up to its next official meeting on May 25, when it will decide whether it needs to extend its agreement for another six months. Mr. Falih and other OPEC officials have said they won't decide on cuts until they have fresh data on vast amounts of oil in storage--a proxy for the global glut.

OPEC officials have said they want stored oil levels to fall by about 300 million barrels. Instead, U.S. inventories have been rising, a trend that has pushed oil prices down.

OPEC Secretary-General Mohammad Barkindo blamed low seasonal demand for the high inventory levels. He also acknowledged that big oil producers pumped flat out in the last months of 2016 just before cutting, increasing supply by 2.3 million barrels a day when demand went up only 200,000 barrels a day.

"This supply growth is now working its way through the system. It will take time for the market to fully absorb," Mr. Barkindo said in a speech in Kuwait released by OPEC.

He said OPEC members needed to fully implement their production cuts to counter the trends pushing prices down. "We expect 100% conformity," Mr. Barkindo said.

Mr. Almarzooq of Kuwait said OPEC's cuts could bring the oil market back into balance by this summer or early fall, though he warned that if members didn't all work together toward a "common objective...this date may be pushed further out."

Write to Michael Amon at michael.amon@wsj.com
 

(END) Dow Jones Newswires

March 26, 2017 07:02 ET (11:02 GMT)

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