Opec countries make compliance count
London, 6 February (Argus) — Opec producers are collectively fulfilling nearly all the 1.2mn b/d of output cuts that they pledged last year to rebalance the oil market.
Opec countries have reduced output by nearly 1.15mn b/d, just 2pc short of their target of cutting by 1.17mn b/d from an October baseline in January-June, Argus estimates. Output fell by 900,000 b/d to just under 32.2mn b/d in January from December (see table). Saudi oil minister Khalid al-Falih put compliance by Opec and non-Opec states with their combined output cuts of 1.8mn b/d at more than 80pc on 22 January, with demonstrable reductions of 1.5mn b/d.
Saudi production fell below 10mn b/d in January for the first time since February 2015 after it trimmed output by 560,000 b/d from its October baseline, deeper than its pledged cut of 490,000 b/d. And output could fall further still. Saudi Aramco has raised its official formula prices for all March-loading crude to buyers in Asia-Pacific, the US, northwest Europe and the Mediterranean market, which could put more of its crude beyond the affordable reach of marginal refiners in each of the four regions.
Iraqi exports fell by around 180,000 b/d last month from record highs in December, and by just over 110,000 b/d from October. The medium sour Basrah Light stream accounted for almost all of the reduction, indicating that fields under federal government control in the south of the country are taking the bulk of the strain. Iraq said its production would fall by 210,000 b/d by the end of January, but oil minister Jabbar al-Luaibi later clarified that this would be from the country's own assessment of its output, rather than through the use of secondary sources as agreed by Opec in Vienna on 30 November.
Iranian production rose by 30,000 b/d last month. But output has yet to reach the 3.8mn b/d target that Tehran negotiated last year, leaving it more than compliant with cuts when marked against a July 2005 baseline.
The widespread implementation of the Opec and non-Opec cuts helped push oil prices to 18-month highs of nearly $55.80/bl in January, and prices are holding steady at close to that level this month. Crude producers are generally satisfied with a price of $55-60/bl, Iranian oil minister Bijan Namdar Zanganeh says. But Opec's aim of rebalancing the market could yet prove elusive if output in Libya and Nigeria recovers further. The two are exempt from the deal because of widespread internal unrest that has disrupted production. Combined output rose by 170,000 b/d in January as some assets came back on stream.
Rising crude prices are helping US tight oil production turn a corner after nearly two years of decline, and the rig count in the country is rising rapidly. But Saudi Arabia appears unconcerned by this. "We have no problem with the growth in American indigenous oil supplies — as long as they grow in line with global energy demand, we welcome them," al-Falih said in January.
Venezuelan state-owned PdV chief executive Eulogio Del Pino says oil prices will rise robustly as producers draw down over 300mn bl of excess inventory. "The positive impact will become increasingly evident during the first quarter," Del Pino says. But he cautions that the production agreements will only succeed in boosting crude prices "to the extent that everyone complies" with their share of the reductions.
Global crude supply is expected to exceed demand in the first quarter, even if the Opec and non-Opec agreements achieve a 100pc compliance rate. But a supply deficit could develop in the second quarter if all the reductions are fully implemented, Argus estimates.
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|Jan||Dec||Agreed cut*||Actual cut*||Compliance (%)|
|*from Oct 2016 baseline in Opec Monthly Oil Market Report, except for Iran from Jul 2005, and Angola from Sep 2016|
|†Iranian compliance measured relative to cut from 2005 baseline|
|‡Libya and Nigeria exempt from production agreement|