Despite Saudi compromise, OPEC unlikely to meet oil cut targets

OPEC is unlikely to deliver fully on its target to cut production despite Saudi Arabia reducing oil output to its lowest in 2 years. Under the deal, every OPEC member committed to cutting production except Iran, which was allowed to increase its output to recover from years of sanctions.

The oil cartel agreed a deal last December to cut output by 1.2 million barrels per day (bpd) to 32.5 million bpd from the first of January to reverse the drop in oil price. Russia and other non-member countries also planned to cut production.

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

Reuters reported an OPEC source as saying: “Compliance won’t be 100 per cent, it never is,” before commenting that 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 OPEC members so far, there has been more than 60 per cent compliance, Kuwaiti Oil Minister Essam Al-Marzouq said yesterday.

Last time OPEC cut its output in 2009, following agreements the year before, it largely reached a 60 per cent compliance rate though compliance sometimes peaked at higher levels, 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 per cent compliance once again,” Daniel Gerber of Petro-Logistics, a consultant which assesses OPEC supply by tanker tracking, told Reuters in December.