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IEA Official: Don’t Expect Deeper OPEC Cuts

Julianne Geiger

A senior official at the International Energy Agency on Tuesday said that OPEC is unlikely to reach any agreement that would change the current production cut deal until such a time when the market situation becomes more obvious, according to Reuters.

OPEC’s current agreement between its members and allies, known together as OPEC+, is to cut 1.2 million bpd off its combined production per day.

Iraq’s oil minister had a more bullish view earlier this week, stating that the oil cartel would consider at the upcoming meeting the possibility of cutting another 400,000 bpd.

The reasoning behind the IEA’s lack of faith in OPEC trimming more of the fat to drawn down global inventories is that OPEC has a history, it says, of being reluctant to make changes to how they’re doing things until it is clear that a change would be warranted and beneficial.

But with the current overall compliance rate to the deal at almost 150%, any additional production cut promises will likely not cost OPEC anything in practice. OPEC (147% compliance in October) and its non-OPEC allies (103% compliance in October) could indeed agree to a 1.6 million bpd quota without actually cutting anymore production—the total group’s production cuts in October was 1.59 million bpd.

Related: OPEC’s Number Two Suggests Deeper Oil Output Cuts

The two heavyweights, as usual, will hold the majority of the agreement clout. Saudi Arabia is already producing more than 400,000 bpd under its quota, while Russia is not quite making its target, overproducing in October by 50,000 bpd.

But for as much as Russia likes to play hard to get over increases to the production cuts or to its duration in order to increase its negotiating position of condensates, which it feels should not be part of the quota, Russia’s oil revenue hasn’t been too shabby thanks to the production cuts, boasting oil revenues of $670 million a day in 2019, up by $170 million a day from Q4 2016, right before the OPEC+ cuts began.

Meanwhile, Saudi Arabia, who talks a big game about making sure its less compliant members step in line before anyone agrees to cut more, may not be in much of a position to hold back against additional agreements waiting for promises of better compliance.

By Julianne Geiger for Oilprice.com

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