(Repeats item issued earlier. The opinions expressed here are
those of the author, a columnist for Reuters.)
* OPEC, non-OPEC crude oil supply - tmsnrt.rs/2gnobWD
By Clyde Russell
LAUNCESTON, Australia, Dec 12 The global crude
oil market is starting to resemble a gigantic game of chess,
with a bold opening gambit by OPEC and its allies giving them an
advantage, but the game is still far from checkmate.
The weekend deal by 12 countries outside OPEC to join the
producer group's agreement to curb crude output certainly looks
bullish for prices, as it takes the total amount of oil leaving
the market in the first half of 2017 to almost 1.8 million
barrels per day (bpd).
Brent crude, the global benchmark, reacted strongly
in early trade in Asia on Monday, gaining as much as 6.6 percent
from the close on Dec. 9 to as much as $57.89 a barrel.
Brent has gained nearly 40 percent since its early August
low of just above $41 a barrel, and has been rising as OPEC
first talked about, and then delivered, curbs to production.
The first OPEC and non-OPEC deal since 2001 will see Russia,
the world's top producer, shouldering most of the non-OPEC cuts,
with a commitment to reduce output by 300,000 bpd over the first
half of next year.
Other non-OPEC producers such as Mexico, Brunei, Malaysia,
Kazakhstan, Oman and South Sudan will chip in another 280,000
bpd of cuts, according to the agreement reached in Vienna on
This will add to the 1.2 million bpd of reductions agreed to
by the 13-member OPEC at their meeting on Nov. 30.
So far it all looks very positive for the oil producers.
They have achieved a broad-based agreement that promises to cut
output by about 2 percent of the world's daily crude
consumption, which is certainly significant.
They have managed to overcome political tensions and even
hostilities, such as the rivalry between Saudi Arabia and Iran,
with both countries backing different sides in various conflicts
around the Middle East.
And OPEC has also been successful in convincing other
producers to join in the cuts. Taken together, the OPEC and
allied non-OPEC producers account for close to 60 percent of
global crude output.
So, what can go wrong?
In a nutshell, there are two major things that could
undermine the success of the OPEC, non-OPEC agreement.
The first is compliance. Former Saudi oil minister Ali
al-Naimi hit the nail on the head after an address in Washington
on Dec. 2. "Unfortunately, we tend to cheat," the industry
veteran said of the OPEC deal.
Certainly, for the deal to work, much will depend on the
actions of Saudi Arabia and Russia, as they account for almost
half of the planned combined output cuts.
The Saudis have indicated that they intend to reduce the
amount of crude supplied to customers from January, Reuters
reported on Dec. 9, citing an industry source familiar with
Customers in the United States and Europe will face bigger
cuts than those in Asia, ostensibly because of the large
inventories in the United States.
But it may also be the case that the Saudis want to protect
their market share in Asia, the destination of about two-thirds
of their oil exports.
The kingdom has been locked in an intense battle with
Russia, Iran and Iraq this year in supplying crude to the
region's top two buyers, China and India.
While the Saudis have increased overall volumes, they
haven't done so by as much as their competitors, meaning they
have lost market share and so far this year Russia has usurped
their position as the top supplier to China.
Iraq will supply full contracted volumes of crude to three
Asian buyers in January, Reuters reported on Dec. 9, citing
three sources with knowledge of the matter.
And Iran cut its official selling price of its light crude
grade for Asian customers to the lowest in four months for
January cargoes, although it did raise it for other regions.
Taken with Russian Energy Minister Alexander Novak's
statement that his country's cuts next year will be gradual,
it's possible that Asian oil markets will remain quite well
supplied in the early months of 2017.
It will take some time to work out the level of compliance
with the agreed output cuts, and if there is cheating, the
question then becomes whether the Saudis will tolerate this,
assuming they are not one of those cheating as well.
The other risk to the deal is the response of the 40 percent
of world oil output not subject to the agreement, with the key
swing producers being U.S. shale drillers.
An oil price of close to $60 a barrel brings them back into
play, as can be seen by the rising drilling rig count in the
United States, now in its seventh month of expansion.
The lifting of the ban on crude exports from the United
States has also opened the way for increased output to make its
way to Asian refiners, something that already appears to be
Oil major BP is shipping almost 3 million barrels of
U.S. crude to Asia, Reuters reported on Dec. 7. Other traders
are also showing interest in developing new routes, moves that
may undermine the efficacy of the OPEC/non-OPEC deal.
It's doubtful that U.S. shale output can rise enough to
offset the whole 1.8 million bpd cuts announced by OPEC and its
allies, but other producers may also be able to take advantage
of rising prices, such as Canada, Brazil and Norway.
Where the oil price ultimately heads in the first half of
next year will be decided by whether the actions of OPEC and its
allies match their words, and how can the other producers
(Editing by Richard Pullin)