OPEC Signals It’s on Track With Goal to Drain Oil Inventories

Oil pumping jacks, also known as "nodding donkeys", in an oilfield near Neftekamsk, in the Republic of Bashkortostan, Russia, on Thursday, Nov. 19, 2020. The flaring coronavirus outbreak will be a key issue for OPEC+ when it meets at the end of the month to decide on whether to delay a planned easing of cuts early next year.

(Bloomberg) --

OPEC is on track with its objective to deplete the world’s bloated oil inventories.

The Organization of Petroleum Exporting Countries will under-supply global crude markets even as it restores some halted production this month, data from the monthly report indicated Thursday. A new production cutback recently announced by Saudi Arabia, the cartel’s biggest exporter, will deplete stockpiles even further over the next two months.

OPEC Secretary-General Mohammad Barkindo said on Wednesday that the main priority of the group and its allies is to pare “stubbornly high” stocks left behind when the pandemic crushed fuel demand.

“What we are focused on is how can we assist the market in accelerating the stock draw-down, in order to bring the market back into balance,” Barkindo said. Stocks in industrialized nations remain about 160 million barrels above their five-year average, he added.

OPEC’s efforts have revived oil prices, which are trading near a 10-month high above $53 a barrel in New York.

While the report released by OPEC’s Vienna-based research department on Thursday didn’t make any forecast on stockpile trends, the data it contains offers a guide on how balances will develop.

If OPEC goes ahead with its modest increase of 500,000 barrels this month, and the Saudis fulfill their promise to slash 1 million barrels in February and March, the organization will pump an average of about 25 million barrels a day during the first quarter, according to Bloomberg calculations.

That’s considerably below the 26.79 million barrels the group believes is required, and will thus reduce inventories at a rate of 1.8 million barrels a day in the three-month period.

OPEC left annual forecasts for supply and demand in 2021 unchanged, though it said that the first quarter will be tighter than previously estimated as consumption picks up and output from its rivals slows.

Accelerating demand means that oil stockpiles could fall even faster in the second and third quarters, depending on what production policy OPEC and its partners choose.

The 23-nation OPEC+ alliance will meet in March to decide if it can go ahead with restoring output further.

The report also showed one of the challenges brewing in the background for the coalition.

Iran, which has suffered punitive sanctions on its crude exports imposed by U.S. President Donald Trump, restored production to about 2 million barrels a day in December.

President-Elect Joe Biden has signaled readiness to revive a nuclear agreement that would allow Tehran to significantly ramp up supplies. Such a move could undermine efforts fellow OPEC+ nations have made to keep world oil markets in balance.