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MOSCOW, January 11. /TASS/. The implementation of the agreements between OPEC member-states and non-OPEC members on oil production cut can redress the balance on the market in the first half of this year, according to the World Bank’s Global Economic Prospects report.
OPEC decided at its November 2016 meeting in Vienna to limit production to 32.5 mln barrels per day in the first half of 2017, down 1.2 mln barrels per day from October 2016 production levels, with the possibility of extending this limit for the remainder of the year. In a subsequent meeting on December 10, eleven non-OPEC countries pledged to cut nearly 0.6 mln barrels per day, among them Azerbaijan, Bahrein, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, the Republic of Sudan and South Sudan.Thus, the total crude oil production cut will amount to 1.7-1.8 mln barrels per day.
"If implemented in full, these agreements could help bring crude oil inventories back to historical balance during the first half of 2017. If the cuts are sustained into the second half of 2017, stock draws could lead to tighter market conditions. Nevertheless, formal commodity agreements in the past had limited ability to influence market conditions over extended periods of time.The possibility of partial compliance and the possibility of higher production from Libya and Nigeria could result in a more gradual drawdown of oil inventories throughout 2017," the World Bank said.
According to WB experts, OPEC’s ability to guide global oil prices higher will likely be challenged by the presence of unconventional oil producers. Particularly, U.S. shale oil producers "can respond rapidly to changing market conditions." "Rising prices have already led to a rebound in shale drilling, and U.S.production is expected to bottom in 2017.Moreover, average costs have fallen markedly in recent years because of efficiency gains and managerial improvements, leading to expectations of a sizable increase in U.S. shale activity once oil prices reach $60 per barrel," the report said.