- Helima Croft/RBC Capital Markets
Gulf Cooperation Council oil ministers expressed confidence that sovereign producers would live up to their commitments to cut output at the Global Energy Forum in Abu Dhabi on Thursday – the first major gathering of key OPEC oil ministers since the November agreement to cut production.
And Kuwait’s oil minister,Issam Almarzooq, told CNN at the forum, “If we continue to see the current level of prices and the commitment to of the community, as well as non-OPEC at a satisfactory level, I think we could renew for another six months.”
However, markets and analysts continue to closely monitor the production cut. And one country in particular that folks have been watching closely is Iraq, whose oil minister said in the weeks leading up to the deal that his country could not cut production given that it needs energy revenues to fight the Islamic State.
Notably, there was a “moment of drama” at the forum when, during his keynote speech, Iraqi oil minister Jabbar al-Luaibi criticized the decisions to not allow Iraq to abstain from the production cut and to base Iraqi production figures on secondary sources rather than on self-reported ones, wrote Helima Croft, head of commodity strategy at RBC Capital Markets, who was one of the speakers at the event, in a note.
Al-Luaibi later stated that the country would fully comply with the deal. He added that Iraq has already taken measures to cut output by 170,000 barrels per day, and was getting ready to cut an additional 40,000 bpd to meet the target level.
- RBC Capital Markets
“Despite his forceful statement, we think Iraq’s ability to fully commit will still remain subject to significant skepticism going forward,” Croft argued in her note.
Back in November, OPEC agreed to curtail production output for the first time since 2008.
The decision to limit production reverses producers’ two-year strategy of pumping as much oil as possible and reflects their desires to end the global supply glut that has kept prices depressed.
The bulk of the cartel’s cut is coming from Saudi Arabia, although others including Iraq, the United Arab Emirates, Kuwait, and Qatar are also participating. Meanwhile, Libya and Nigeria, which were plagued by ongoing production outages last year, are exempt.
Additionally, several major non-OPEC producers including Russia, Mexico, and Kazakhstan also agreed to cut their production soon after. (Notably, Croft also wrote that “unsurprisingly, the issue of non-OPEC compliance with the recent OPEC deal dominated the morning session at the Global Energy Forum today.”)
For what it’s worth, OPEC producers have a history of pumping above their quotas, as Business Insider’s Akin Oyedele reported last week, citing Larry Adam, the chief investment officer for the Americas at Deutsche Bank Wealth Management.
“That deal was consummated in the historically weak demand period for energy,” Adam said at a press event. “Let’s see what happens when all of a sudden you get to the spring, when driving starts to take place in the United States … let’s see how closely they abide by this agreement.”
“I have some concerns that if we get any wavering in terms of compliance, there is so much bearish sentiment ready to come back in,” Croft told CNN.