OPEC and other oil producers agreed on a way to monitor their compliance with last month’s historic supply deal, putting global markets on track to re-balance after more than two years of oversupply.

The countries have already cut oil supply by 1.5 million barrels a day, more than 80 percent of their collective target, since the deal took effect on Jan. 1, Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih told reporters in Vienna.

“Compliance is great -- it’s been really fantastic,” Al-Falih said Sunday. “Based on everything I know, I think it’s been one of the best agreements we’ve had for a long time.”

Saudi Arabia, Kuwait, Qatar, Algeria and Venezuela met counterparts from non-OPEC nations Russia and Oman to find a way to verify that the 24 signatories to their Dec. 10 accord are fulfilling pledges to remove a combined 1.8 million barrels a day from the market for six months. They intended to prove the Organization of Petroleum Exporting Countries is serious about eliminating a global glut and dispel skepticism stemming from previous unfulfilled promises.

Monitoring Mechanism

Kuwaiti Oil Minister Essam Al-Marzouk, who chairs the five-member monitoring committee, emerged smiling from the hour-long meeting with a message of success: oil producers were in “total agreement” on the monitoring mechanism and wouldn’t accept anything less than 100 percent compliance with the cuts.

The committee, comprising ministers from Kuwait, Russia, Algeria, Venezuela and Oman, will meet next on March 17 in Kuwait and again in May. OPEC’s secretariat will present it with a report on the 17th day of each month, the group said in a statement. A technical group, consisting of delegates from each of the five committee members along with OPEC president Saudi Arabia, will meet each month to prepare the report.

The monitoring committee will assess data submitted by each producer country, along with information from agencies such as IHS Cambridge Energy Research Associates, Argus Media Ltd. and the International Energy Agency, Russian Energy Minister Alexander Novak said. The committee will evaluate compliance with production targets only, though the technical group may also look at export data to support its analysis, Novak said.

Secondary Sources

Oil prices rose to an 18-month high of more than $58 a barrel after OPEC and several non-members agreed to end two years of unfettered production and instead cut output. Crude has since slipped about 5 percent from that peak as traders await proof that they will follow through.

Brent oil in London was up 0.2 percent at $55.58 a barrel as of 8:49 a.m. Singapore time, holding a 2.9 percent gain over the previous two sessions.

Saudi Arabia, the world’s biggest oil exporter, has already exceeded its target with an output reduction of more than 500,000 barrels a day, Al-Falih said, while Algeria and Kuwait have also cut to levels beyond their targets, according to ministers from those nations. Other OPEC members such as Iraq and Venezuela have not yet reached their quotas but say they are more than half-way there.

Al-Falih said he hoped all countries would reach full compliance with the deal next month and forecast that brimming global stockpiles of crude oil would return to normal levels by the middle of the year. The agreement expires at the end of June, though producers will discuss in May whether to extend it, Kuwait’s Al-Marzouk said.

Russia has pared production by an average of 100,000 barrels a day, a milestone it hadn’t expected to reach until next month, Novak said. The largest producer involved in the agreement said it would make a daily reduction of 300,000 barrels by April or May.

“We are starting to see a shift in the momentum and the emergence of more bullish sentiment on the market,” Al-Marzouk said earlier Sunday. “These are all encouraging signs that we are on the right track.”

Producers are keeping the door open for a possible extension of the six-month deal, Novak said. However, there’s no indication that the cuts will need to be prolonged after June, Algerian Energy Minister Noureddine Boutarfa said Saturday in an interview.

OPEC’s production fell by 220,900 barrels a day to 33.085 million a day in December, led by declines in Saudi Arabia and Nigeria, according to secondary sources data in the group’s monthly report published Jan. 18. The organization agreed to reduce its output to 32.5 million barrels a day, although that total included about 740,000 barrels a day from former member Indonesia.

“We started to trust each other better, which is just as important as the market re-balancing,” Novak said. “One year ago not many believed in the success of this initiative.”

Source:
courtesy of BLOOMBERG

by Grant Smith , Angelina Rascouet , and Anna Shiryaevskaya

If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]