OPEC’s track record of cheating on promised oil production cuts since the 1980s has given crude markets pause in recent days.
But the cartel will probably comply with at least 80 percent of the recently proposed 1.2 million barrels a day in output cuts set to begin this month.
That’s because the cartel’s biggest cheaters, Venezuela and Iran, have been hamstrung by outages and flat-lining output, Amrita Sen, chief oil analyst at London research firm Energy Aspects, said on Wednesday.
“Even if they wanted to cheat, they couldn’t cheat,” Sen said during a panel at the Argus Crude Summit in downtown Houston.
Over the past three decades, OPEC has typically complied with 66 percent of promised cuts, according to an analysis by Energy Aspects, though that compliance rate should improve this year in part because Venezuela’s oil production has declined as the country wrestles with severe financial pressure.
Oil field service company Schlumberger, for one, has effectively ceased operations in the Latin American country because Venezuela hasn’t been able to pay many service companies. Venezuela’s output will likely continue to decline this year, Sen said.
And Iran’s production has flattened since May, though that has been masked as the Islamic Republic increases exports by offloading millions of barrels of condensate from floating storage facilities, which it has done since September.
Iran, Sen said, has exported some 18 million condensate barrels of the total 33 million barrels it had in floating storage earlier this year, selling these to countries like South Korea and China.
Oil prices have edged down on market jitters about OPEC’s commitment to cutting oil production and rising U.S. output this year. U.S. crude prices dipped $1.14 to $51.34 a barrel on Wednesday in mid-day trading on the New York Mercantile Exchange.
Traders have worried about projections that U.S. oil production will rise and offset cuts made by OPEC. Sen, for one, believes the nation’s crude output will increase by half a million barrels a day as producers dispatch drilling rigs to the Permian Basin.
But many analysts have ignored the effect of low oil prices on other countries outside of the United States and OPEC. Non-OPEC production fell by 900,000 barrels a day last year, and though that was offset by OPEC ramping up production, these countries are expected to see a decline of 100,000 barrels a day this year even with increases in the United States, Sen said.
“The reality is activity has collapsed around the world,” she said.
Ed Morse, global head of commodities research at Citigroup, who also spoke at the panel, said oil prices could end the year around $60 a barrel, depending on how much global oil inventories decline this year, according to a base case forecast by the New York bank.
“We’re in a period of time when the market has already been rebalancing, and it’s likely to lead to higher prices,” Morse said. “We think inventories are going to draw steadily as markets rebalance.”