(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Clyde Russell
LAUNCESTON, Australia May 8 One of the factors
behind the recent slump in crude oil prices may be the
realisation among market participants that there is a difference
between production cuts and export flows.
While OPEC and its allies appear to have been relatively
successful in implementing their planned output cuts of 1.8
million barrels per day (bpd), this has yet to show up in a
meaningful way in the amount of crude oil being transported by
The seeming easy availability of crude despite the output
cuts helped drive crude prices lower, with Brent
dropping as low as $46.64 a barrel on May 5, just above the
close of $46.38 on Nov. 29, the day before OPEC and its allies
announced the deal to trim production and down about 20 percent
since its recent peak in early January.
The 11 members of the Organization of the Petroleum
Exporting Countries that agreed last November to restrict output
by 1.2 million bpd for the first six months of 2017 achieved 90
percent compliance in April, according to a Reuters survey.
Output by the 11 countries was 29.92 million bpd in April,
up fractionally from 29.9 million in March and only about
116,000 bpd above the agreed target.
The non-OPEC countries that agreed to curb their output by a
combined 600,000 bpd also largely claim to be compliant, with
major producer Russia saying it has exceeded the 300,000 bpd it
agreed to cut as part of the deal aimed at boosting oil prices.
Top OPEC producer Saudi Arabia and Russia appear to be in
favour of extending the agreement for another six months, a move
that is likely to be confirmed when OPEC and its allies meet on
Ultimately the output cut is supposed to tighten the oil
market by reducing supplies and draining inventories.
The problem is assessing how successful OPEC and the other
producers are being in this endeavour.
One method is to look at vessel-tracking data as an
indicator of physical flows.
While ship data doesn't capture oil moved by pipeline, it
still represents more than half of the global market and is
therefore a useful indicator.
The broadest measure of the data captures all movement by
tankers, including domestic voyages and ship-to-ship transfers,
and provides a universal picture of the amount of crude moving
around the world.
In April this totalled 45.23 million bpd, down from March's
46.4 million bpd and February's 46.2 million bpd, but up from
January's 44.3 million bpd, according to Thomson Reuters' Eikon
vessel-tracking and port data.
For the first four months of the year, the average was 45.5
million bpd, which was actually higher than the 45.1 million bpd
in the last four months of 2016.
While this wide measure of data does show that there is no
shortage of oil being shipped around the globe, it doesn't say
how much of this is new production being exported or inventories
being drawn down.
OPEC EXPORTS DOWN
To gain a clearer picture of how much OPEC is actually
exporting, the data can be filtered to show only vessels that
have discharged their cargoes, are in the process of
discharging, or are underway to their destination.
On this basis, OPEC members exported 24.7 million bpd in
April, down from 25.6 million bpd in March and 26.4 million bpd
in February, and level with January's exports. This is only
tanker exports, and doesn't count any pipeline movements.
For the first four months of 2017, OPEC exports by tanker
averaged 25.4 million bpd, down from 26.1 million bpd for the
preceding four months.
This represents a drop of 700,000 bpd, which is below the
pledged output cut of 1.2 million bpd, suggesting that OPEC
members may have been drawing down internal inventories in
But it's also worth noting that the reduction in exports by
OPEC doesn't appear to have resulted in less oil moving by
tanker, meaning the shortfall has been made up by producers
outside the agreement pumping more crude, or by inventories
being drawn down.
The question of inventories emerges as the key factor for
the success of the deal between OPEC and its allies.
If global crude flows by tanker were higher in the first
four months of this year compared to the preceding four months
because of producers outside the agreement pumping more, this is
bearish for OPEC and shows the group has considerably more to do
in order to boost the price.
On the other hand, if global crude flows were being
bolstered by inventories being drawn down as market participants
feared the market was heading for backwardation, then this may
be bullish over the medium to longer term for OPEC's aim of
increasing the price.
This makes inventory levels key to the outlook for prices,
and this is an area with incomplete global data.
While detailed information is available for many developed
countries, data is patchy or non-existent for much of the
But what is known is that U.S. crude inventories fell by a
smaller than expected 930,000 barrels last week to 527.8 million
barrels, but they are also 3 percent higher than a year ago.
OPEC said on April 12 that inventories in OECD nations
dropped in February, but were still 268 million barrels above
the five-year average.
This suggests that OPEC and its allies still have a long
road to travel to drain inventories, and that the market may not
re-balance as quickly as they would prefer.
(Editing by Joseph Radford)