OPEC and non-OPEC producers left their meeting in Vienna Sunday claiming 100% commitment with plans to cut output, but market watchers will have to wait a little longer for hard evidence of full compliance.
There was certainly convincing rhetoric from the oil ministers and there have been signs of significant cuts, but the market must now determine fact from fiction, given the expected natural declines from some countries, planned maintenance and how output is responding from exempt producers like Nigeria and Libya.
Saudi oil minister Khalid al-Falih was "positive" that non-OPEC producers were taking part in the cuts, while Russia's Alexander Novak said his expectations have been "exceeded".
But beyond the ministers' platitudes, the monitoring committee -- made up of representatives from Algeria, Kuwait, Oman, Russia and Venezuela -- still has little to work with.
Moreover, minister claims that the market could rebalance within the first six months have many analysts wondering if the recovery in US production and shale will derail this process.
"They claim growing US production is no issue because growing demand will absorb it. That may be true, but that sure sounds a lot like conceding market share to the US, and that OPEC will have to reconsider their game plan yet again in the coming months/years," said Tony Starkey from Platts Analytics, a unit of S&P Global Platts.
The cut agreement only came into effect on January 1, in the aim of pinning back production by close to 1.8 million b/d. Since then the market has been anxious to gather any news on output reductions.
Just three weeks in, with next to no published production data yet available, the producers' monitoring committee has attempted to pull together a mechanism to accurately gauge compliance.
More data will be needed to convince skeptics that the group can keep up with its commitments, and quickly.
According to OPEC's official statement from Sunday's meeting, each of the 24 signatories to the production cut agreement will nominate a technical representative who is to supply OPEC with production data.
Falih, who has just taken on the role of OPEC's latest president, summed up the balance between statements of commitment from producers and the absence of cold, hard production figures.
"We see evidence of a 1.5 [million b/d cut]. Everybody has declared their full commitment. For all I know, and I still hope we will see evidence in February, we are going to get 100% compliance, possibly more", he told journalists after the meeting.
His "back of an envelope" calculation of compliance, was based on constant communication with customers, and through lifting and loading data, Falih added.
Novak went even further with his own calculation. "If we take the overall number of countries, it should be 1.7 million b/d. So in my view as a result of statistics that we will have for January we will have an even bigger cut than 1.7 mil b/d", he told the Russia 24 television network.
MARKET BALANCE EYED BY MID-2017
Russia has in fact moved ahead with its own production cuts faster than planned, he added, and production since the beginning of January has fallen by more than 100,000 b/d.
To some extent this is due to abnormally low temperatures in some oil producing areas in early January. However, Russia has committed to a cut of 300,000 b/d over the course of the six months so it still has some way to go to make good on its pledge.
Saudi Arabia has also exceeded its target, cutting output by more than 500,000 b/d, to less than 10 million b/d, Falih confirmed. But it is not clear how much of this is due to refinery maintenance at Yanbu and lower crude burn in the Persian Gulf winter.
So too have some other OPEC producers, such as Kuwait. Kuwait was only required to cut output by 131,000 b/d, but having already reached that level, has reduced by a further 6,000 b/d, and plans to go down to 148,000 b/d, officials said.
Other producers, such as Iraq and Venezuela, have not yet cut down to their quotas, but say they are committed to reaching their required levels in the coming months.
Venezuela's production was already down by half of its commitment, newly appointed oil minister Nelson Martinez said.
"The other 300,000 b/d [on top of the 1.5 million b/d the producers already suggest has been cut], for all I know, still happened, we just haven't seen the evidence for it", he said.
Confirmation of these cuts will go a long way to easing concerns over compliance.
With the monitoring mechanism now agreed, the evidence will be presented to the committee for review on February 17, with regular monthly updates thereafter on the progress of the deal.
Novak added that the committee will judge compliance based on secondary source data, and not country self-supplied figures. These secondary sources -- including S&P Global Platts -- compile monthly estimates of each country's output for the preceding month. Their inclusion has been a contentious issue for some countries, such as Iraq, where the two figures have shown significant variance.
Full compliance, for the entire six months of the deal, and possibly beyond, could bring global crude stock levels back to their five-year average by middle of the year, "lowering oil in storage by around 300 million barrels", Falih said.
His view was echoed again by Novak, who said he had reassessed his outlook on the market rebalancing, bringing it forward. "Today, we see that balancing is possible at the end of first half of the year", he said.
This appears a little optimistic especially given the impact that increased US shale production and response of global demand to higher prices may have on the market balance. Of course, the cuts could also be offset by rising output from Libya and Nigeria, which are exempt from the deal.
"Demand is expected to be higher again this year, though there have been some worrying signs in terms of US gasoline demand in the past couple of months, as well as a generally trending higher of oil prices along with the US dollar, which may negatively impact demand growth expectations this year, and coupled with the return of OPEC supply, could spell trouble for the oil market in the latter half of 2017," Starkey cautioned.http://www.platts.com/latest-news/oil/london/analysis-opecnon-opec-claim-compliance-but-questions-27755876