The International Energy Agency has warned on the scale of the challenge facing Opec as it tries to raise oil prices, after the cartel’s production hit a record high in September and with demand growth continuing to slow.
After last month’s agreement by Opec to curb output, oil prices rose above $53 a barrel to their highest in a year.
However, the rally, which has reached 15 per cent since the meeting in Algiers, is vulnerable in a market that is awash with crude.
“Opec has effectively abandoned its free market policy set in train nearly two years ago,” the IEA said in its monthly report yesterday.
“Global oil inventories are far too
high — in the view of some producers — and they aren’t being worked off nearly fast enough.”
Crude supply from the 14 members of the producers’ goup had climbed to 33.6m barrels a day in September, the highest to date, and would hover around that level in the run-up to the next ministerial meeting in November, the world’s leading energy body said.
Opec hopes to have a binding deal in place by that time, but many critical details, such as allocations for cuts by individual countries, have yet to be finalised.
The cartel has been under increasing pressure to rein in output in recent months, as forecasts of when the balance between supply and demand will come close to being restored have been pushed further out.
Output from producers outside the cartel has proved more resilient to a two-year price crash than many expected, while many Opec members have kept raising output to compete with each other for a bigger share of the market.
“At this stage, it is difficult to assess how the Opec supply cut, if enforced, will affect market balances,” the IEA said.
A significant rebound in supply from Libya and Nigeria and further growth from Iran would suggest that bigger cuts would have to be made by others, such as Saudi Arabia, to meet the new output target.
The kingdom’s decision to back output cuts comes almost two years after it led the cartel in a battle against rival producers such as US shale by refusing to cut output to bolster prices.
But Saudi Arabia’s economy, like others reliant on oil export revenue, has been battered by the price slide.
The IEA said the extent of any co-operation from non-Opec producers such as Russia was yet to be determined, though the two-year price crash is forging new alliances.
Oil rose more than 3.5 per cent on Monday after Russian president Vladimir Putin said he backed efforts to curb production.
Brent crude, the global benchmark, traded slightly lower on Tuesday, down 42 cents to $52.73 a barrel.
“We think that freezing or even cutting crude production is probably the only right decision to preserve the stability of the global energy [sector],” Mr Putin said, suggesting Russia would join in any supply pact.
But doubts have swirled about Russian participation after the head of state-owned oil company Rosneft, which accounts for 40 per cent of domestic oil output, said he will
not agree to a freeze or cut in oil production.
“Why should we do it?” Igor Sechin, who is renowned for his anti-Opec rhetoric, told Reuters.
Stephen Brennock, at London-based oil broker PVM, said: “Along with the lingering uncertainty on how Opec production cuts will be allocated, Russia is ill-prepared to rein in record output levels.”
Higher Russian and Kazakhstan production boosted non-Opec output by 500,000 barrels a day last month, the IEA said.
This puts more pressure on Opec, with that sharp increase reversing more than a third of the production decline outside the cartel in the past 12 months.
Opec also faces the challenge of a recovery in output from violence-hit members Libya and Nigeria, which could swamp any agreement formally to restrict supply. Iraq has also indicated it is loath to restrict production.
But the IEA said that without a deal the market would only inch slowly towards balance.
“The market — if left to its own devices — may remain in oversupply through the first half of next year. If Opec sticks to its new target, the market’s rebalancing could come faster.”
Reporting by Neil Hume and David
Sheppard in Vienna and Anjli Raval in London
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