Opaque production figures hobble petro cartel OPEC

Submitted by alvin on Fri, 2016-11-25 17:25 When OPEC oil ministers sit down later this month in Vienna, all eyes would be on them. For at stake would be OPEC’s future as a credible entity. OPEC has serious challenges to surmount: Questions continue to circulate about its ability to bring about a revolution in the global crude balance. The question being asked is: would OPEC be able to act in unison? The overall scenario is not healthy. Global crude balance sheet continues to be weak, and chances of it getting better in the shorter run do not appear too bright. Despite the agreement in Algiers to cut output, OPEC continues to produce at levels higher than before. According to the International Energy Agency, OPEC output reached a new record of 33.64 million bpd last month, while the global crude output went up by 600,000 bpd in September. Total global production in September reached 97.2 million bpd, a 200,000-bpd increase on September 2015. OPEC also confirms the trend. As per an OPEC report, its output during the month rose by 220,000 barrels a day to 33.39 million bpd. The September figure is the highest since 2008, Reuters said. OPEC based its output numbers on independent sources, including oil traders, industry analysts and ship trackers. But the figures are also generating discontent within OPEC. Iraq and some others are contesting the figure. As per the OPEC report, Iraq pumped 4.46 million bpd in September, whereas Iraq is insisting it pumped 4.78 million bpd. Saudi Arabia is also arguing over its output figure of 10.49 million bpd in September, as given in the monthly report. The Kingdom said that its output averaged 10.65 million bpd for the month.  Venezuela also said its production was higher than OPEC’s given number, while Nigeria said its production was lower. Iran declined to report a number. Disagreement about the actual output is a cause of concern for OPEC ministers. Current output of each member country is to be used as a reference point to calculate the cut to be made by the respective country. These figures are thus crucial in this entire exercise. And more crude seems on the way. As per OPEC, non-OPEC output will grow by 240,000 bpd from this year to average 56.54 million bpd next year, largely because of new Russian projects. In September, Russia pumped a post-Soviet record high of 11.1 million bpd. With both OPEC and non- OPEC output going up, balancing the markets becomes still more difficult. In the meantime, despite the fact that Russia has pledged, at the highest level, to join OPEC in cutting output, confusion still persists. Russia's most influential oil executive, Igor Sechin, the head of Rosneft, told Reuters mid-October that his company will not cut or freeze oil production as part of a possible deal with OPEC. "Why should we do it?" Sechin told Reuters in Istanbul when he was asked if the company will cap its output. Rosneft accounts for about 40 per cent of Russia's crude oil output. Rosneft was aiming to raise its oil production this year above the 4.1 million bpd it produced in 2015. Sechin also cast doubt on whether other oil exporting countries will cut their output. Sechin has long argued that any oil price increase as a result of joint actions by OPEC and non-OPEC members would allow the United States to resume production growth from high-cost shale deposits. High inventory also carries considerable ramifications for the global crude market balance. According to OPEC, global crude inventories are at “near all-time highs". The IEA too is concurring. Any (output) deal would face challenges from a three-billion barrel global inventory built-up in recent years. Record global debt levels are also posing a clear risk to oil demand, the International Energy Agency said last month, citing figures from the International Monetary Fund that showed the world is awash with a record $152 trillion in debt. With OPEC’s future at stake, ministers need to rise up to the challenge.