(Graphics on crude oil flows: tmsnrt.rs/2pV7zgF)
By Clyde Russell
SINGAPORE, April 25 Is it yet time to call the
crude oil output cuts by OPEC and its allies a failure?
Certainly there is an increasing disconnect between the
rhetoric of OPEC and other producers cutting output on the one
hand and the reality of a well-supplied crude oil market and
mixed signals on the level of global inventories on the other.
The Organization of the Petroleum Exporting Countries and
other producers, including Russia, have been touting the high
compliance with the agreement to reduce output by 1.8 million
barrels per day (bpd) from January to June.
It now appears that OPEC and its allies are moving to
prolong the deal for another six months, with consensus building
for an extension, which is likely to be announced at a meeting
scheduled for May 25.
If the success of the deal is to be judged purely by prices,
then an argument could be made that it has at least led to crude
finding a floor above $50 a barrel.
Global benchmark Brent crude spent the second half
of last year mainly between $40 and $50 a barrel, before being
lifted after the OPEC and allies agreement was announced at the
end of November.
When the deal took effect from Jan. 1, Brent traded in a
narrow range for two months, before falling sharply in early
March, but the support level of $50 held, with only a brief
foray to an intraday low of $49.71 on March 22.
But Brent is once again testing the bottom of the
post-agreement range, dropping to as low as $51.42 a barrel on
Monday, as scepticism mounts over the ultimate effectiveness of
the OPEC measures.
Perhaps more important for determining the longer-term price
outlook is to look at the amount of oil available and the levels
For OPEC and its allies to achieve their aim of sustainable
higher prices, both global supplies and inventories have to be
reduced, the so-called market re-balancing.
RECORD CRUDE BEING SHIPPED
It's here that the main evidence of the failure of the OPEC
agreement is to be found.
Global oil shipments by tanker are at a record high in
April, according to vessel-tracking data compiled by Thomson
Reuters Supply Chain and Commodity forecasts.
As of Tuesday, the data shows that an average 50.3 million
barrels per day (bpd) of crude is being shipped in April, up
from the previous record 46.1 million bpd in January.
The data excludes crude moved by pipelines, but it's
extremely unlikely that pipeline supplies have been cut by more
than seaborne cargoes have increased.
The data also show that Saudi Arabia, which undertook to
make the largest output cut among those producers party to the
November deal, is actually increasing tanker shipments in recent
months, to levels well above those that prevailed late last
The kingdom is expected to ship 8.29 million bpd in April,
up from 7.94 million bpd in March, 7.73 million bpd in February
and 7.83 million bpd in January.
Chinese customs data released on Tuesday showed that the
world's biggest crude importer received higher supplies from
Saudi Arabia, Russia, Angola, Iran and Iraq in March than it did
the previous month.
The Chinese numbers don't exactly fit in with the narrative
of successful output cuts, rather they show the opposite.
The picture that emerges shows there is a big difference
between reducing output and actually cutting supplies.
It's quite likely the case that OPEC and its allies have
been in high compliance with their agreed output cuts, but this
hasn't necessarily translated into significantly lower shipments
of crude oil.
An additional problem is that producers outside the
agreement, such as the United States and Brazil, have been
increasing production and shipments.
The plentiful supply of oil can be seen in global
inventories, with the International Energy Agency saying
recently that inventories in industrialised countries were still
10 percent above their five-year average.
To be sure, barrels stored in less visible places, such as
in developing nations and in floating storage, do appear to be
drawing down, but there is a question mark over whether this is
happening fast enough to provide a basis for higher oil prices
in future months.
But for OPEC and its allies to achieve lasting success, they
will actually have to reduce the amount of crude being shipped.
It doesn't matter how much you talk about reducing output or
drawing down producer inventories, what ultimately matters for
the price is the amount of crude that buyers can access.
Right now, it's probably too early to say OPEC and its
allies have failed, but the data on crude flows indicates that
they are heading that way.
(Editing by Richard Pullin)