And the U.S. shale boom continues.
When OPEC and Russia meet next month to assess the impact of their oil cuts they face a surprising outcome: Stockpiles are even higher than when they started.
Inventories have started to decline, but by the time ministers gather in Vienna on May 25, developed nations still won’t have burned through the big stockpile increase caused by a surge in OPEC output just before the cuts came into force, data from the International Energy Agency indicate.
The Organization of Petroleum Exporting Countries has been “hoisted by its own petard” by agreeing in principle to reduce production last September while allowing members to keep boosting sales until the deal took effect on Jan. 1, Citigroup said. While the group has fully implemented its pledged cuts, that’s being offset by U.S. shale oil producers buoyed by price gains, according to Commerzbank.
“OPEC is like a magician waving his hands and trying to pull the rabbit out the hat, but still the rabbit isn’t there,” said Eugen Weinberg, Commerzbank’s head of commodities research in Frankfurt. “They’ve done all they can with the production cuts and the effect is close to non-existent.”
The accord last year between OPEC, Russia and 10 other producers was intended to boost prices by eliminating an inventory surplus of about 300 million barrels over the five-year average — equivalent to three days of global oil production. By this measure, the historic agreement hasn’t delivered.
At the end of December commercial oil stockpiles in the 35-nation Organization for Economic Cooperation and Development totaled 2.98 billion barrels, according to the Paris-based IEA, which advises those countries on energy policy. That rose to 3.06 billion barrels in January due to a late surge in OPEC shipments before the cuts came into force.
“Producers unintentionally accelerated activities that would ultimately obstruct, and for a period reverse, the very rebalancing they were trying to accelerate,” said Ed Morse, head of commodities research at Citigroup.
Inventories in the OECD — which consumes about half global supply — fell only slightly in February and remained 330 million barrels above the five-year average, bigger than the surplus of 286 million at the end of December, IEA data show.
Bloomberg calculations using the agency’s supply and demand projections indicate that, by the time OPEC’s accord expires in June, stockpiles will be roughly back in line with their end-December level and still about 200 million barrels above the five-year average. That would leave the group, which must decide in May whether to extend its pact for another six months, well short of its goal.
That picture could change in the coming weeks, said Paul Horsnell, head of commodities research at Standard Chartered in London. Data for the first quarter aren’t detailed enough yet to make solid conclusions, and inventories in more obscure locations may be falling more rapidly…