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Opec, allies said to be relooking how they measure impact of supply cuts

London

OPEC and its allies have held further discussions about changing the way they measure the impact of their production cuts, including proposals that would affect how quickly they hit their target, according to delegates from the group.

One option discussed by Opec and non-Opec delegates in Vienna on Monday was to measure commercial oil inventories in developed economies against the seven-year average instead of five years, said the delegates. That would move their goal of restoring stockpiles to normal levels further from reach, potentially requiring a longer period of cuts to achieve it.

While the people said no final decision has been taken and the ultimate choice resides with ministers - who didn't attend the Vienna meeting - the discussions underscore the lingering uncertainty as the group's agreement enters a second year. They are going beyond their pledged cuts and crude has rallied above US$60 a barrel, but there are signs that Saudi Arabia would like to go further.

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When Opec, Russia and their allies struck a deal in 2016 to end the price slump and rebalance an oversupplied market, they set a target of bringing oil inventories in members of the Organization of Economic Cooperation and Development (OECD) back in line with the five-year average. After more than a year of supply curbs, they've made significant progress.

Stockpiles fell further in February to around 44 million barrels above that measure, down from a surplus of 293 million barrels in January 2017, the first month of the cuts, said the people, who asked not to be identified because the meeting was private. Assuming current conditions remain the same, the market is on track to rebalance on the five-year measure in the second or third quarter, the meeting found. However, Saudi Arabia and Russia, the two biggest producers taking part in this deal, have both previously 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 global market.

Monitoring global inventories, rather than just those in OECD countries, was another possibility under discussion, one person said. The Vienna talks didn't settle on any single option, the people said.

If ministers were to eventually pick a different measure, their choice could reinforce the need to maintain supply curbs for the whole of this year - something Saudi Arabia supports - or perhaps signal that the group's target has already been achieved, allowing cuts to be phased out.

Ministers from the Opec and non-Opec Joint Ministerial Monitoring Committee, which includes Saudi Arabia and Russia, will meet next in Jeddah on April 15. Ministers from all 24 nations participating in the cuts agreement gather in Vienna on June 22. BLOOMBERG

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