OECD crude oil inventories have fallen below the five-year average -- OPEC's key measure for its production cut agreement -- for the first time since the producer group began cutting back output, a senior OPEC source told S&P Global Platts Sunday.
Commercial oil inventories were 20 million barrels below the five-year average, the source said, as officials from OPEC kingpin Saudi Arabia and key non-OPEC producer, Russia indicated Friday they would begin increasing output in the second half of the year.
The OPEC alliance has lowered stocks close to its five-year average goal much quicker than expected due to supply outages in Venezuela and strong compliance to the 1.8 million b/d output cut deal. The group's Joint Ministerial Monitoring Committee said Friday compliance was 152% for April.
The inventory figure is significantly lower than OPEC's most recent estimate of OECD stocks at 2.829 billion barrels as of the end of March. That was just 9 million barrels above the five-year average that OPEC is targeting.
OPEC and 10 non-OPEC producers, led by Russia, are in the midst of a 1.8 million b/d supply cut deal that runs through the end of 2018 to support prices and reduce the global overhang of oil in storage.
The producers have been searching for a new way to measure oil market stability, beyond its current fixation on average stocks levels. Russian energy minister Alexander Novak said Friday OPEC is leaning towards switching to looking at the number of days of stock consumption, rather than the number of barrels stored, and could also extend the observation period from five to 10 years.
Platts' own estimate of OPEC crude production for April slid to a one-year low of 32 million b/d, largely due to Venezuela's continued output deterioration. That is down 140,000 b/d from March, and around 730,000 b/d below OPEC's notional ceiling of about 32.73 million b/d, when every country's quota under its production cut agreement is added up.
With their inventory goals achieved, the group will meet June 22 in Vienna to discuss the deal, amid speculation that it may have to increase output to make up for any Iranian barrels shut-in due to the US' decision to re-impose sanctions. Venezuela, a major OPEC member whose production is already in decline, also faces the prospect of additional US sanctions.
However, analysts at BNP Paribas said in research note Friday they expected the production cuts to be maintained for the rest of the year.
"With Saudi Arabia stressing the need for more capex to meet future oil demand and replace the natural decline from aging fields, and thus presumably a higher price to incentivize investment, supply cuts, in one form or another, may be extended to 2019," the note said.
