Crude oil inventories will decline at a faster pace worldwide in the second half of the year as demand increases and Opec members comply better with a global agreement to cut output, Kuwait’s Opec governor Haitham Al Ghais said.
Opec and other major producers including Russia agreed in May to extend their supply-cuts deal through March 2018 because stockpiles had not fallen to their five-year historical average - the goal of the agreement. Yet for the past two weeks, US crude inventories have declined, exceeding analyst expectations.
“I see this trend continuing with more conformity from Opec and non-Opec producers, coupled with a further growth in demand,” said Mr Al Ghais, who was appointed Kuwait’s Opec governor last month. It would be “illogical” for Opec to change strategy now, he said in a phone interview in Istanbul. Kuwait leads the committee monitoring the output curbs.
Opec's compliance with the supply cutbacks fell in June to the lowest level since the deal started in January, the International Energy Agency (IEA) said on Thursday. Rising production from Opec is threatening a re-balancing of the market, with the group’s output last month at the highest level this year, the IEA said. Benchmark Brent crude prices have slumped this year amid concerns that increased supply from Libya, Nigeria and the United States is negating the impact of Opec's cuts.
Concerns that supplies will keep climbing in Libya and Nigeria, both exempt from the cuts deal, are “not justified” because their production is fluctuating within a range of 300,000 to 500,000 barrels a day (bpd) on average, Mr Al Ghais said. “We need to see if these increases will be sustained and stable,” he said.
Libya's production has risen to 1.05 million (bpd), a person with direct knowledge of the matter said on Wednesday. That is the highest level since June 2013, according to data compiled by Bloomberg. Nigeria is producing 1.7 million bpd, Minister of State for Petroleum Resources Emmanuel Kachikwu told reporters on Wednesday. The nation's output has climbed 17 per cent this year, data compiled by Bloomberg show.
Libya and Nigeria were invited to send representatives to the next meeting of the Opec and non-Opec Joint Technical Committee in Russia later this month to discuss their production, according to Mr Al Ghais, who chairs the committee. He is also head of research at Kuwait Petroleum Corp.
“Opec is interested in knowing more about the situation in its member countries and their attendance doesn’t mean that Opec is concerned by their recovery,” he said.
The committee reviews conditions in the market and sends findings to the Joint Ministerial Monitoring Committee led by Kuwait’s oil minister.
The supply-cuts deal is “working well,” and there is no need to take further action at this time, Mr Al Ghais said. Opec needs to “focus on its longer-term goal to lower oil stocks and balance the market,” he said.