OPEC Secretary General Mohammed Barkindo Tuesday said any decision to extend a landmark oil production cut agreement past June will depend on global stock levels and an assessment of market fundamentals.
Speaking at a news conference during the International Petroleum Week conference in London, Barkindo did not rule out further cuts, if necessary, but said "it's too early for us to begin to second guess" what market conditions would be like when OPEC ministers next met on May 25 in Vienna.
The 11 non-OPEC countries that are party to the production cut deal will also be invited to confer with OPEC in Vienna to determine their next course of action, Barkindo said.
"Confidence has returned to this market, but I think going forward, we have to watch how the stock levels continue to respond to the full and timely implementation of the declaration of cooperation between OPEC and non-OPEC countries," he said.
The deal, which runs from January through June, calls for OPEC's 13 members to cut a combined 1.2 million b/d from October levels down to a range of 32.5 million-33 million b/d, while the 11 non-OPEC countries, led by Russia, have committed to a 558,000 b/d cut.
OPEC has said the deal is aimed at reducing the global stock overhang down to its five-year average.
Barkindo acknowledged that that goal is still a ways off.
"Stocks are still very high, and it will take some time for the implementation process to go through," he said.
'TEETHING PROBLEMS'
In an earlier speech at the conference, Barkindo hailed the high level of OPEC compliance so far and said he expected even tighter adherence to the deal going forward.
"We hope in the following months, we will see higher levels of conformity," he said. "I think so far so good."
Several secondary sources, such as S&P Global Platts, have pegged OPEC compliance with the cuts at 90% or above, though the level of the reductions has been offset somewhat by increases from Libya and Nigeria, which are exempt from the deal.
The 11 non-OPEC countries are much further from achieving their required cuts, although Barkindo declined to specify how compliant they are.
Russia, for instance, cut only 118,000 b/d in January, according to its ministry, out of a 300,000 b/d cut commitment, though it has said that pace is faster than it had originally planned and that the full cut would be achieved by May.
Still, he said "the level of commitment that I have seen both within OPEC and among these 11 non-OPEC [countries] is really unprecedented," he said. "In the month to come, we will see even higher numbers from both sides." In his news conference, Barkindo said he was in regular contact with Russian officials and was confident they would fulfill their commitment to cut 300,000 b/d, dismissing some of the early non-OPEC noncompliance as "teething problems" by countries not accustomed to close monitoring of their production.
He added the monitoring committee set up to enforce the deal would be able to determine transparently whether countries are exceeding their cut allocations. The committee is scheduled to hold a technical meeting in Vienna starting Wednesday.
Barkindo said the deal prompted the 11 non-OPEC countries participating to "waive some of their sovereign incumbencies to monitor or police, if you like, the implementation of the joint agreement." The monitoring committee is chaired by Kuwait and includes OPEC members Algeria and Venezuela, along with non-OPEC Russia and Oman.
While OPEC production will be monitored through several secondary sources, including S&P Global Platts, non-OPEC output is measured through official country-supplied statistics.
SAUDI ARABIA LEADING THE CUTS
Within OPEC, much of the compliance is being led by Saudi Arabia, which has cut below its allocation under the deal of 10.058 million b/d to 9.98 million b/d in January, according to the latest Platts OPEC survey. The kingdom self-reported to OPEC that its January production was even lower, at 9.75 million b/d.
The high level of Saudi cuts has helped cover for other OPEC members that have not reached their cut commitments, notably Iraq, which was still some 130,000 b/d above its allocation in January.
Barkindo said he dis not expect Saudi Arabia to continue compensating for its fellow OPEC countries.
"We are confident that all member countries, with no exception, will implement their obligation 100%," he said.
The secretary general stressed the importance of stabilizing oil prices so that investment in exploration and production would be enough to meet future demand.
He said upstream capital expenditure budgets had been slashed some $300 billion globally over the last two years.
In remarks on an earlier panel at the conference, however, Shell upstream director Andy Brown said not to expect international oil companies to open the floodgates immediately on E&P spending, even as several majors have begun cautiously to increase their budgets as prices have recovered.
IOCs had learned their lessons from the downturn, he said, and "that discipline is going to survive for some time."
