Has OPEC Succeeded in Its Mission?

Fronted by 14 nations, including some of the world's biggest oil and gas producers, the Organisation of the Petroleum Exporting Countries (OPEC) has serious sway when it comes to influencing prices. Over the past few years the cartel has been working relentlessly to drain the global inventory surplus and push up prices. Now, the latest Oil Market Report from the International Energy Agency (IEA) suggests that the goal has finally been achieved.

"It is not for us to declare on behalf of the Vienna agreement countries that it is ‘mission accomplished’, but if our outlook is accurate, it certainly looks very much like it,” reads the report issued by the Paris-based energy agency.

A perfect storm for OPEC

Currently just under half of the world's oil supply is subject to restraint, which has played a key role in balancing the market, increasing prices and boosting stocks. A sharp decline in production from Venezuela, as well as uncertainty surrounding production in Syria and Yemen, has also helped OPEC meet its targets, with March compliance rates sitting at 163%. Brent crude oil prices now reflect the decline in production, with prices pushed up to over $70/bbl.

IEA predicts steady inventory decline

Global inventories have plunged, with the Organisation for Economic Co-operation and Development (OECD) surplus dropping to a mere 30 million barrels above the five-year average. Meanwhile, refined product stocks have dropped below the five-year average, with the IEA maintaining that if output remains steady and demand continues to grow, inventories could continue to decline at a rate of 0.6-mb/d right through until 2019. While data and statistics aren't always accurate, the IEA is confident that OPEC has achieved its long-term goal. In fact, the agency has admitted that the outlook could be better than initially expected.

“With markets expected to tighten, it is possible that when we publish OECD stocks data in the next month or two they will have reached or even fallen below the five-year average target.”

OPEC's next challenge is to keep the cuts in place and continue to regulate production, and therefore prices. This will likely see the cartel formulate new criteria and metrics designed to keep its member nations in check.

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