The shift to the global oil order that happened at the end of 2016 may not be as sticky as you think.
OPEC's November 30 deal in Algeria turned oil market
expectations for 2017 on their head. Instead of a fourth straight year of
rising global oil inventories, stockpiles look set to actually shrink.
The plan was to cut output by nearly 1.2 million
barrels a day in the first half. That agreement was followed by a pledge from a
group of non-member countries to trim their production by almost 560 000
barrels a day. This is still what's expected.
These deals led the International Energy Agency and
others to forecast that the long-awaited oil market rebalancing could begin
almost immediately. But, as the agency warns, only if the agreement is
implemented in full.
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OPEC's members seem fully committed to the cuts, but, as
I've written, the biggest threat could come from those countries who were left
out of the deal. OPEC members Libya and Nigeria were exempt from the cuts and
both have already made progress in restoring output curtailed by unrest.
If they meet their ambitious plans for further increases
in the coming months they could seriously undermine the efforts of their
fellows.
That could jeopardize the foundation of the November
agreement and leave OPEC and its allies needing to consider a further cut even
before the last one is fully implemented.
This column does not
necessarily reflect the opinion of Bloomberg LP and its owners.
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