OPEC’s Invalids May Have Tipped Oil Cuts From Failure to Success

(Bloomberg) -- OPEC’s campaign to avert a global surplus has received decisive help before it even starts -- from the very countries that were too weak to join the effort.

Starting this month, the group has promised to reduce output by 800,000 barrels a day from October levels, part of a broader deal with like-minded oil producers such as Russia.

Data from the Organization of Petroleum Exporting Countries released on Thursday shows the three countries exempted from the agreement because they were already suffering supply disruptions -- Iran, Libya and Venezuela -- had already lost exactly that amount as of December.

OPEC’s Invalids May Have Tipped Oil Cuts From Failure to Success

It was a similar story when OPEC last intervened in the market from 2017 to 2018. In that case the collapse of Venezuela’s oil industry made all the difference between the success and failure, removing even more crude than intended from an oversupplied market.

This time around, if output from the trio of invalids had remained at October levels, then OPEC supply would probably have exceeded demand this year, even if the others had faithfully implemented their promised cutbacks. Instead the group is now poised to rebalance markets as planned.

Since October, Iran has lost 560,000 barrels a day as U.S. sanctions scare away buyers. Libya’s output has once again been rocked by political protests and Venezuela sapped further by its chronic economic crisis.

Of course, output could recover in some of these nations. In particular, disruptions in Libya have regularly flared up, then been resolved.

Yet as the U.S. seeks to pressure Iran further and Venezuela’s meltdown continues, the inadvertent help OPEC receives from those countries could also get bigger.

©2019 Bloomberg L.P.