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Opec needs to prolong cuts after swelling glut, Citigroup says
[LONDON] Opec and its partners probably need to prolong production cuts, simply to counteract the glut they created just prior to the deal, according to Citigroup Inc.
The Organization of Petroleum Exporting Countries and allies including Russia don't need to cut output much further to rebalance world markets, Citigroup's Ed Morse said.
However, they'll likely need to keep output low once the accord expires in June in order to clear supplies added while negotiating the deal last year, he said.
"The Opec cut ironically added a million barrels a day of oil to the market," Morse said in a Bloomberg television interview with Francine Lacqua and Tom Keene.
"One of the ironic aspects of that two-month period when they all over-produced is that" it means the supply deal "probably needs to be extended."
Opec and 11 nations including Russia agreed last year to cut production for six months in a bid to end a three-year surplus that has depressed prices and battered the economies of energy-exporting nations. Producers will meet again in May to decide whether the period of cutbacks should be extended.
Citigroup's view is in line with that of Total SA Chief Executive Officer Patrick Pouyanne, who said in an interview on Tuesday that the agreement will need an extension, and London-based consultant Energy Aspects, which said the glut can't be cleared without one.
"The rebalancing appears far off still, and many are starting to question Opec's impact on balances," it said in an e-mailed report Thursday.
The organisation can avoid continuing the accord if all members abide by it, Iraqi Oil Minister Jabbar al Luaibi said in an interview with Sabah newspaper. The group has implemented more than 90 per cent of the curbs pledged in January, an Opec technical committee concluded.
Still, Iraq has lagged behind other nations, completing about 166,000 barrels of the 210,000-barrel reduction it committed to, according to Mr al Luaibi.
Opec will face long-term problems from the resurgence of US shale oil and the policies of President Donald Trump to stimulate its growth, Mr Morse said.
With US output poised to climb, expectations among forecasting institutions for a "supply gap" by the end of the decade may need to be postponed "forever", he said.