OPEC cuts not having dramatic effect for members

Parties to an OPEC-led effort to bring the oil market back to a healthy balance between supply and demand have more work to do, an industry analyst said.

The Organization of Petroleum Exporting Countries in November agreed to hold production to around 32.5 million barrels per day, a collective cut when counting data from Indonesia, which is no longer a member of the group. Russia and several other producers are contributing as non member states, though Russia's compliance has come under question.

Based on direct communication between OPEC economists and producers, cuts so far are above the benchmark, though secondary industry sources reported cuts below the level agreed to in November.

Leonardo Maugeri, a senior fellow with the Geopolitics of Energy Project at Harvard University, said in a recent note that focusing on those figures may be "misleading." OPEC production between October and January, when the deal went into force, increased to the point that the member states that are contributing need to cut 2 million barrels per day more than they are currently.

"And things are even worse for those 12 non-OPEC producers that agreed to make oil output cuts together with OPEC," he wrote. "Their commitment was not overwhelming -- as a whole, less than 600,000 barrels per day -- yet their level of compliance with that target was less than 60 percent in February."

A month ago, Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said OPEC's goals through the duration of the six-month agreement depend in large part on how much production comes from members operating outside the deal.

Cuts from OPEC so far are not enough to reduce global crude oil supplies, he said, but just enough to keep the situation relatively unchanged from last year. By the estimates of his group, total global crude oil supplies would be slightly higher than last year during the first half of the year if OPEC's production levels through January hold through the duration of the agreement.

Maugeri said the market situation is such that oil production has increased for most players not party to the multilateral production agreement. North America, Brazil and North Sea producers combined for around 1 million barrels per day more over September figures, by his account.

"OPEC and non-OPEC cuts are not enough to re-absorb the world's excess supply," he stressed.

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