SINGAPORE/SEOUL (Reuters) - Oil buyers from China to India remained cautious as they await details of OPEC’s agreement to cut production for the first time since 2008 in order to reduce a global oversupply of crude.
Global oil prices held onto gains on Thursday after soaring 6 percent in the previous session as the Organization of the Petroleum Exporting Countries (OPEC) agreed on Wednesday to reduce output to a range of 32.5 million to 33 million barrels per day (bpd).
The group will decide how much each country will produce at the next formal OPEC meeting in November, when an invitation to join the cuts could also be extended to non-OPEC countries such as Russia.
The agreement took most Asian refiners and traders by surprise although they were skeptical of the deal given the lack of details. But, as the buyer of 62 percent of OPEC’s exports in 2015, Asian refiners are most likely to feel the brunt of any cuts.
“We have to wait and see whether they will take real action and how long it would last,” said Kim Woo-kyung, spokeswoman at SK Innovation, owner of South Korea’s largest refiner.
OPEC’s new target represents an implied cut of 0.5 million to 1 million bpd, although the actual cut could easily be much smaller at equal to or less than 0.5 million bpd, depending on whether Libya and Nigeria can recover from supply disruptions, Societe Generale’s oil analyst Michael Wittner said.
OPEC’s output in August was 33.5 million bpd, according to a Reuters survey.
The indicative supply cut “is not a very appreciable amount” given the global oversupply, said BK Namdeo, head of refineries at Hindustan Petroleum Corp Ltd. He also raised concerns about the participation of different OPEC members in the cuts and how non-OPEC suppliers will respond.
“Any supply cut will be balanced by higher production by Iran, Libya and Nigeria. Venezuela also cannot afford to cut production,” said Namdeo.
“It is still not clear whether Russia will join the efforts. If shale gas producers boost production than the whole game will fail,” he said.
Analysts have warned that higher prices could spur U.S. shale oil producers to raise output, negating the effects of the supply cut.
The OPEC deal is unlikely to affect Middle East crude supplies to term customers in Asia for 2017, but may crimp additional volumes that producers have been offering throughout 2016, Asia-based traders said.
“They’ve been giving incremental volumes so maybe less for next year,” said a trader with a North Asian refiner who declined to be named as he was not authorized to speak to media.
Robust oil demand in Asia has so far absorbed increasing OPEC production this year. However, the International Energy Agency (IEA) is forecasting a drop in Asia-Pacific demand growth for the fourth quarter of 2016 and into next year.
That could further spur OPEC to take action and could support compliance for the cuts, though the IEA’s forecast of 1.3 million bpd of fourth-quarter demand growth is historically strong.
“It has historically taken a fall in oil demand to ensure quota compliance, as in that case, production is forced lower by a decline in refinery intake around the world. This is not the case today with resilient demand growth,” Goldman Sachs analysts said.
Asian refiners’ crude demand is expected to hold steady unless there are major changes in refining margins or crude prices set by producers, traders said.
Still,”to many consuming nations which have more or less got accustomed to low oil market over the past two years this agreement can be quite a shock,” said an oil trading manager at a major Chinese refiner.
Reporting by Florence Tan and Keith Wallis in SINGAPORE, Jane Chung in SEOUL, Nidhi Verma in NEW DELHI, Meng Meng and Chen Aizhu in BEIJING and Yuka Obayashi in TOKYO; Editing by Michael Perry and Christian Schmollinger