But no indication of production policy change—yet

From Reuters

JEDDAH, Saudi Arabia (Reuters) – A global oil glut has been virtually eliminated, according to a joint OPEC and non-OPEC technical panel, two sources familiar with the matter said, thanks in part to an OPEC-led supply cut deal in place since January 2017.

The meeting of the Joint Technical Committee (JTC) earlier on Thursday found that oil inventories in developed nations in March stood at 12 million barrels above the five-year average, one of the sources said. That’s down from 340 million barrels above the average in January 2017.

The stated goal of the supply cut is to reduce the excess in oil stocks to that of the five-year average, although oil ministers have said other metrics should also be considered.

No apparent desire to wind down cuts

Although OPEC is closing in on the original target of the pact, there is no indication yet that top exporter Saudi Arabia or its allies want to wind down the supply cut.

Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to the supply-cutting deal even though its original target is within sight.

The Organization of the Petroleum Exporting Countries, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. They have extended the pact until December 2018 and meet in June to review policy.

Few OPEC sources call for an exit strategy. Most officials are talking of introducing additional inventory metrics to assess the success of the deal, and of a need to support investment in new production to avert any supply crunch.

The impression is that oil prices are seen as not yet high enough to encourage sufficient oil investment. Oil LCOc1 was trading above $74 on Thursday, having reached its highest since November 2014.

After the technical meeting, a ministerial panel of OPEC and non-OPEC producers called the JMMC gathers in Jeddah on Friday.

The ministers are expected to discuss the five-year average inventory metric on Friday, though the JTC has made no recommendations on this, the sources said.

OPEC’s Secretariat in Vienna will be tasked to prepare a study with different scenarios on inventories, market fundamentals and the risks which might impact market stability such as possible U.S. sanctions on Iran, one of the source said.


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