Opec and other oil-producing countries are scaling back their crude output as promised under last month’s historic agreement, putting global markets on track to re-balance after more than two years of oversupply.

Producers have cut oil supply by 1.5 million barrels a day, more than 80 percent of their collective target, since the deal came into effect on Jan. 1, Saudi Minister of Energy and Industry Khalid Al Falih told reporters in Vienna as ministers gathered to monitor compliance with the agreement. 

"Compliance is great — it’s been really fantastic,” Al Falih said on Sunday. "Based on everything I know, I think it’s been one of the best agreements we’ve had for a long time.”

Saudi Arabia, Kuwait, Qatar, Algeria and Venezuela are meeting counterparts from non-Opec nations Russia and Oman to figure out ways to verify that the 24 signatories to their Dec. 10 accord are following through on their pledge to remove a combined 1.8 million barrels a day from the market for six months. They intend to prove the Organisation of Petroleum Exporting Countries (Opec) is serious about finally eliminating a global glut and dispel scepticism stemming from previous unfulfilled promises.

Full compliance

International oil prices rose to an 18-month high of more than $58 a barrel after Opec and several non-members agreed to end two years of unfettered production and instead cut output. Crude has since slipped about 5 per cent from that peak as traders await proof that they will follow through.

Saudi Arabia, the world’s biggest oil exporter, has already exceeded its target with an output reduction of more than 500,000 barrels a day, Al Falih said, while Algeria and Kuwait have also cut to levels beyond their targets, according to ministers from those nations. Other Opec members such as Iraq and Venezuela have not yet reached their quotas but say they are more than half-way there.

Al Falih said he hoped all countries would reach full compliance with the deal next month and forecast that brimming global stockpiles of crude oil would return to normal levels by the middle of the year. The agreement expires at the end of June.

Russia has reduced production by an average of 100,000 barrels a day, a milestone it hadn’t expected to reach until next month, Energy Minister Alexander Novak said. The largest producer involved in the agreement said it would make a daily reduction of 300,000 barrels by April or May.

"We are starting to see a shift in the momentum and the emergence of more bullish sentiment on the market,” Kuwait’s Oil Minister Essam Al-Marzouk said at the start of the monitoring committee’s first official meeting. "These are all encouraging signs that we are on the right track.”

With January not yet complete, the committee will focus mostly on how to assess compliance rather than produce any new data, said one person. As outlined in Opec’s initial agreement, monthly production data known as "secondary sources” compiled by analysts in the group’s secretariat will be the principal tool for judging whether members are complying with the deal, said three people. Those figures don’t cover non-members such as Russia.

The committee currently has no plans to use external agencies, such as consultants that track oil exports by monitoring tanker movements, to verify that countries are implementing the pledged supply curbs, said three people familiar with the matter. It will meet every month, Al Marzouk said.

There’s no indication that the cuts will need to be extended beyond the initial six-month term, Algerian Energy Minister Noureddine Boutarfa said in an interview, echoing comments from his Saudi counterpart earlier this week.

"If we really comply by 80 to 90 per cent, it may not be necessary to continue,” Boutarfa said. "We aren’t excluding it, but signals are positive.”

Opec’s production fell by 220,900 barrels a day to 33.085 million a day in December, led by declines in Saudi Arabia and Nigeria, according to secondary sources data in the group’s monthly report published Jan. 18. The organisation agreed to reduce its output to 32.5 million barrels a day, although that total included about 740,000 barrels a day from former member Indonesia.

"We started to trust each other better, which is just as important as the market re-balancing,” Russia’s Novak said. "One year ago not many believed in the success of this initiative.”

Source :Times Of Oman