As for this weekend’s meeting, “I expect them to come out with a reaffirmation and point to the high degree of compliance,” Yergin said.
Analysts say in OPEC’s favor is the fact that the compliance by OPEC members and others now appears to be much better than expected. The cartel is not exhibiting some of the blatant overproduction of the past.
“In sharp contrast to previous agreements, the degree of compliance now is very high, and that may not be so well recognized in the market. It was obviously what drove up the price” earlier in the year, said Yergin. “The shift in sentiment was quite stark, and it was to do with confidence, not the agreement, and the focus on inventories. It was also due to the new bullishness in U.S. shale.”
Helima Croft, global head of commodity strategy at RBC, agreed that compliance appears to be strong, after concerns about countries like Iraq, and even Russia not being fully engaged yet. According to Reuters, Saudi Arabia intends to keep supply in line with its quota at about 10 million barrels a day, regardless of what happens with production.
“It’s not like there are egregious cheaters in the first place,” said Croft. “The breakdown of who is doing what is a bit fuzzy, but some are doing more. Some are doing less.” She said if there was a spoiler in the group, it could end up being Iraq.
“I think Iraq will be a subject of discussions, and whether there’s any flexibility for Iraq. Can you really hold them to 210,000 barrels (cut)?” Croft said. But she expects at the end of the day, the compliance monitoring group will be supportive of the deal and there will be an extension at OPEC’s May meeting. Kuwait has already indicated it wants an extension.
“We went from having these very heated debates over whether OPEC would cheat and could they hold it together, to: ‘Look what OPEC’s done so far. It looks pretty good,'” she said.
