Market share decrease outweighed by increase in oil prices
OPEC may be better off since its recent cuts, with revenues up since cuts were implemented, according to a release by Baird Equity Research.
OPEC originally rejected any output cuts, choosing at the beginning of the downturn to focus on preserving and increasing market share. This decision was eventually reversed, and production cuts were agreed to.
Saudi Arabia cuts beyond pledged levels
OPEC’s production cut, announced last November, has been successfully implemented, most analysts agree. Estimates at the end of February put compliance levels at 94% of targets. Saudi Arabia has cut the most production, with current production levels down 744 MBOPD. This is above and beyond the targeted level of 486 MBOPD.
Overall, OPEC members have cut output by about 1.098 MMBOPD, with 1.164 MMBOPD targeted. Previous OPEC cuts have been marred by cheating, making this success something of a surprise.
While these cuts have decreased OPEC market share, as expected, revenue has actually gone up. According to Baird, OPEC’s total market share has declined to 33.2%, from 33.7% in October. Daily oil sales values, however, are up 17%.
Even Saudi Arabia, which represents the majority of total OPEC production cuts, has seen revenues increase. By Baird estimates Saudi oil revenue has risen by $62 million per day to $521 million per day, an increase of 13%.
Russia also pledged to decrease oil output, targeting a 300 MBOPD decrease from pre-cut levels. Currently Russian output has decreased by 100 MBOPD, but the country has reaffirmed its commitment to reaching its targets. The remaining 200 MBOPD of cuts are expected to be implemented by the end of Q1 2017.
The effects of these cuts have been somewhat diminished by the United States, where production has increased. The U.S. global market share is up 0.27% since October, to 9.2%. Oil revenues have similarly increased, from $408 million/day to $471 million/day.
Further cuts proposed
While OPEC’s current production decrease has not significantly decreased the global inventory, they have been successful enough that continuing the cuts is possible. Iraq and Angola, which have not cut production to promised levels, announced that they would participate if OPEC extended cuts into the second half of 2017.
