LONDON Jan 31 (Reuters) – Saudi Arabia and its Gulf allies have accounted for almost all the production cuts delivered by OPEC so far as the kingdom resumes its familiar role as swing producer.
Saudi Arabia cut production by 564,000 barrels per day (bpd) in January, or 16 percent more than the 486,000 bpd reduction it pledged in November.
But the organisation’s members as a whole have cut output by just 958,000 bpd, or 18 percent less than promised cuts totalling 1.164 million bpd, according to the monthly Reuters survey.
As a result, Saudi Arabia has shouldered almost 60 percent of the output cuts so far, compared with a pledged share of just over 40 percent.
Saudi Arabia and its allies Kuwait, the United Arab Emirates and Qatar have contributed 82 percent of all the cuts made by the organisation’s members, compared with a planned share of 68 percent.
Compliance rates among other members of the Organization of the Petroleum Exporting Countries have generally been much lower (“OPEC oil output falls 1.07 million bpd in Jan”, Reuters, Jan 31) .
Algeria and Venezuela have delivered just 18 percent of their promised cuts and Iraq’s compliance has not been much higher at 24 percent.
Strictly speaking, the cuts are meant to be averaged across the first half of 2017 so no OPEC member has yet broken its promises.
Poor performers could still make deeper cuts in the months ahead to make up for the low level of compliance in January, though this seems unlikely.
OPEC has returned to its traditional behaviour (“OPEC and other commodity cartels”, Alhajji and Huettner, 2000).
By cutting their own output deeply, Saudi Arabia and Kuwait have masked the low level of compliance across the rest of the organisation.
Compliance excluding Saudi Arabia and Kuwait averaged just 50 percent in January.
The pattern of behaviour is similar to 1999 when Saudi Arabia did most of the deliberate cutting, with some help from Kuwait and the United Arab Emirates.
Saudi Arabia and its allies have once again voluntarily cut output to reduce excess crude inventories and stabilise prices, leaving other members to produce as much as they can. (Editing by Greg Mahlich)
John Kemp is a Reuters market analyst. The views expressed are his own)