Implementation of an agreement between OPEC and other major producers to reduce output has been “very encouraging” and the agreement is on track to reduce the global oil surplus, said the group’s top official.
“We are going to go for much higher levels of compliance because of the very high level of stocks that we have brought over with us from 2016,” Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said in a Bloomberg television interview in London. “Anything less than 100 percent is not satisfactory” and OPEC expects to achieve that level “in due course.”
It’s premature to say whether OPEC would need to extend the agreement beyond its initial term of six months, or even to deepen the cuts, Barkindo said. The pace of the decline in global oil stockpiles, which OPEC wants to see fall back in line with the five-year average, will determine the group’s next move, he said.
Oil has held above $50 a barrel since OPEC and 11 other nations started trimming output. The exporters group implemented about 90 percent of the pledged cuts last month and Goldman Sachs Group Inc. predicts the market will shift into supply deficit in the first half, although U.S. crude stockpiles have kept increasing to the highest level in more than three decades.
Iraq, the group’s second-largest producer only implemented about 40 percent of its pledged cuts in January, according to OPEC data. Barkindo said the nation has pledged to keep cutting.
“I have got commitment from the highest level of government in Baghdad that they will implement their obligations fully,” he said. “What we are seeing is the efforts they are making in achieving their targets. Each member country has their own peculiar logistical challenges and Iraq is not an exception.”
Oil is still far from an “equilibrium price” and inventories remained very high in January, but OPEC’s not disappointed by the market reaction to its agreement, Barkindo said.
-Bloomberg