Oil-rich Azerbaijan committed to prices stabilizing actions

By Azernews

By Nigar Abbasova

While actions of oil producers and their compliance to reduction pledges are in focus of the energy market, the resource-rich Azerbaijan takes real steps demonstrating its commitment to contributing to the stabilization of the situation.

The country revised its forecast for oil output, following the struck of the first since 2001 deal between OPEC and non-OPEC states to curtail oil output jointly.

Energy Ministry of the country told Trend that the average daily oil production in 2017 will amount to 800,000-807,000 barrels, while the production level for 2016 stands at 842,000 barrels. The forecasted oil output in the country for 2017 stands at about 39.797 million tons, while the figure is 3.7 percent less than in 2016.

Earlier Energy Minister Natig Aliyev said that Azerbaijan will cut its oil output by 35,000 barrels per day, mentioning that OPEC member countries and states outside the cartel agreed to meet regularly to ensure the continued oil market price stability.

The world oil prices stood firm on December 13, supported by the first signs that producers are acting on their plans to cut output and the reduction pledges have chances for materialization.

Brent oil was up 26 cents at $55.95, while WTI was up 12 cents at $52.95. The price of a barrel of Azeri Light crude oil increased $1.94 to stand at $56.83.

The action taken by a producer from the United Arab Emirates became one of the visible indicators for long-awaited cut in the supply next year. Abu Dhabi National Oil Company (ADNOC) has told customers that it will cut crude supplies of its three export grades by 3-5 percent. Kuwait's Petroleum Corporation (KPC) acted similarly, notifying its customers about a cut in their contractual crude oil supplies for January.

Oil prices recorded a significant hike to hit mid-2015 highs after 13-member OPEC and other exporters, including Russia, reached a deal to cut output by almost 1.8 million barrels per day (bpd) to oust the reigning oil glut. The consensus reached by the producers became surprising for market watchdogs as several OPEC members were previously reluctant to participate in the deal.

The group agreed to slash output by 1.2 million barrels per day starting from January 1, with the contribution of the top exporter and OPEC’s de facto leader Saudi Arabia standing at 486,000 bpd. The Kingdom is expected to shoulder the bulk of supply reductions.

Producers outside the cartel agreed to reduce output by 558,000 bpd, short of the initial target of 600,000 bpd but still the largest contribution by non-OPEC ever. Russia is also expected to perform real output reductions, curtailing output in line with its pledge of 300,000 bpd. Apart from Russia, the talks on December 10 were attended by or had comments or commitments sent from non-OPEC members including Azerbaijan, Bahrain, Bolivia, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan and South Sudan.

The compliance of the energy market players to production quotas is currently the key thing to watch for analysts, while the following 3-6 months are expected to provide an answer to whether the consent is strong enough. Experts say prices would easily turn negative very quickly should the market feels compliance won't happen, while the fact that there is no legal binding to deter producers inside or outside the cartel from moving aside of their pledges is among factors that raises doubts and concerns.