Opec and allied oil producers including Russia are discussing new ways of measuring global crude stockpiles, signalling a possible decision that could affect production cuts they’re making to ease a global glut.
The oil market should re-balance in the second quarter due to improved compliance by producers with their pledged cuts and to summer demand for crude and refined products, according to people with knowledge of talks between Opec and its partners that started on Tuesday in Jeddah. Yesterday, the Joint Technical Committee was discussing changing the way it assesses oil inventories, the people said, asking not to be identified because the two-day talks are private.
The JTC meeting precedes the producers’ main gathering next month in Vienna, where they will evaluate the results of output cuts they’ve began making since January 2017. With supplies from Iran and Venezuela now at risk, speculation is swirling that the Organization of Petroleum Exporting Countries and its allies may ease the cutbacks. Brent crude has gained 18% this year, a sign that the producers’ strategy of curtailing output to rein in oversupply and support prices is working.
Saudi Arabian Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak are set to meet later this week in St Petersburg to discuss oil prices and market volatility, Novak said on May 18. Al-Falih has also expressed concern over recent volatility. Oil reached $80 a barrel last week for the first time since 2014.
Crude markets are “stable,” Iraqi Oil Minster Jabbar al-Luaibi said yesterday in Baghdad. Iraq, Opec’s second-biggest producer after Saudi Arabia, is “watching” the markets, he said, without elaborating.
In Jeddah on Tuesday, the Joint Technical Committee did not discuss the impact that US sanctions on Iran would have on the oil market or on the production cuts agreement, the people with knowledge said.
Opec and producers such as Russia have been scrutinising crude inventories to assess the impact of their cuts. Stockpiles held by industrialised nations of the Organisation for Economic Cooperation and Development at the end of April were 9mn barrels above their five-year average, down from 12mn at the end of March, two of the people said.
The International Energy Agency said last week that Opec and its allies have finally succeeded in their campaign to clear a glut, with inventories falling below their five-year average for the first time since 2014. However, Saudi Arabia and Russia have both said the five-year average is flawed. Years of excessively high supplies mean that measure is itself higher than normal, while the patchy nature of data outside the OECD makes it difficult to get an accurate picture of the entire world market.
Opec and non-Opec delegates talked earlier, in March, about changing the way they measure the impact of the cuts. One option they discussed then is to continue measuring commercial oil inventories in developed economies against the five-year average, but without counting years of high stockpiles, the delegates said.
Another option is to use a seven-year inventory average, they said. This would move their goal of reducing stockpiles to normal levels further from reach, potentially requiring a longer period of cuts to achieve it.
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