Oil Traders Doubt OPEC Deal Will Bring Heavy Supply Cuts

OPEC's deal to cut oil production is unlikely to result in a substantial reduction in supplies, some of the world's biggest oil trading companies said this week, meaning the market is unlikely to rebalance until well into 2017.

The price of crude oil has stabilised around $50 a barrel since the Organization of the Petroleum Exporting Countries agreed the output deal on Sept. 28.

But rising production from OPEC members Libya and Nigeria is casting doubts over whether the agreement can be effective.

"Clearly, they have put a floor on the market," Gunvor Chief Executive Torbjorn Tornqvist told the Reuters Commodities Summit.

"But I don't think they can do any substantial cut. There are too many uncertain factors involved. These two countries can wipe out any other deal that has been agreed."

Any agreed reduction will not affect actual supplies until next year, Tornqvist said, because the OPEC meeting in Vienna on Nov. 30 to set supply policy will be too late to adjust cargo loading dates before 2017.

"Realistically, they can't do anything till January. We're going to have quite a lot of oil in the market until then. I don't have high expectations of sustained higher oil prices, certainly for the medium term," Tornqvist said.

Mercuria Chief Executive Marco Dunand said prices could fall to the low $40s if OPEC failed to agree anything at the November meeting but could rise to the high $50s and above should it remove as much as 1 million barrels a day from the market.

"Saudis wanted to take back control of the market. But whether they can convince OPEC and non-OPEC to manage inventories and price is still a big question," Dunand told the summit.

 

"Work To Do"
Glencore (GLCNF)'s head of oil, Alex Beard, was also sceptical OPEC's deal was a game changer.

"We need to see the real deal in November rather than the talk of the idea of doing a deal," he said.

"Libya's production is certainly going up at the moment and Nigeria is obviously off its lows as well. So I guess my outlook on the OPEC meeting is they've still got their work to do to come up with the detail that will convince the market."

Gunvor's Tornqvist said the oil market was unlikely to rebalance until the middle or second half of 2017, giving a time frame similar to that expected by Vitol's chief.

Vitol Chief Executive Ian Taylor said on Monday that the oil price could reach the high $50s to low $60s if OPEC and other producers cut supplies by 1 million barrels per day.

"But can they really give us a million between OPEC and non-OPEC? It's a tough call," Taylor said.

The head of BB Energy, Mohamed Bassatne, told the summit that he did not expect a rapid rally, or an early rebalancing of supply and demand.

"I do think that the market will probably have found some kind of bottom between $45 and $50," he said.

"It probably will go higher, but it still needs time to rebalance ... I don't see it rebalancing until probably second half of 2017."

Asset manager Pierre Andurand, whose energy fund has some $1.36 billion in assets under management, said he believed non-OPEC supply was well on the way to shrinking quickly enough, while demand looked healthy, so the OPEC agreement would help speed up any oil price recovery.

"With the capex cuts that we've seen, and have carried on seeing, I think the non-OPEC declines are structural. So we don't see a wall of supply coming in 2017. We see the opposite," he said. "Even without an OPEC cut the markets were getting better and we were going to go up further."