Opec compliance edges lower
London, 10 April (Argus) — Opec compliance with its target to reduce production by nearly 1.2mn b/d edged down in March, as the three largest producers increased their output.
The group cut a collective 1.08mn b/d last month from the mainly October baseline against which the cuts are measured, putting compliance at 93pc (see table). This represents a slide compared with January-February, when compliance was above 100pc. Opec's three biggest producers — Saudi Arabia, Iraq and Iran — boosted production in March, along with Algeria, Angola and Gabon. But Saudi Arabia and Angola are still overcomplying with their individual targets, while Iraqi, Algerian and Ecuadorean adherence remains poor.
Iraq has pledged to comply fully with its obligations, Opec secretary-general Mohammed Barkindo says. It has had some "teething problems", but these "have been overcome, and Iraq is on course to achieve 100pc conformity. I have received this reassurance from the highest level of government and industry in Iraq, so I am satisfied," he says.
"I remain cautiously optimistic that the market is already rebalancing," Barkindo says. "We are seeing stocks coming down, so we are confident that the market will come back into balance, aided by the joint actions taken by Opec and non-Opec," he says.
The lower Opec compliance was partly offset by firmer Russian adherence to its target under the non-Opec segment of this year's agreements. Russia cut its output by just under 180,000 b/d to 11.01mn b/d in March, leaving the country almost 60pc compliant with its 300,000 b/d reduction target, an improvement on its compliance rate of 40pc a month earlier. Saudi oil minister Khalid al-Falih had warned in early March that Riyadh would "not carry the burden of free riders".
Disruptions last month in Libya and Nigeria — both of which are exempt from the Opec agreement — are likely to have eased concerns that rebounding supply from these countries would undermine the Opec and non-Opec efforts. Clashes around Libya's Es Sider and Ras Lanuf terminals temporarily disrupted production in March, while the El Sharara field briefly halted late in the month for maintenance, taking some 220,000 b/d off stream. And Nigeria carried out maintenance at the Bonga field last month, reducing its output.
Concerns have been mounting over the effectiveness of the Opec and non-Opec cuts, regardless of March's lower compliance, given a 26mn bl rise in US crude stocks since early February. The stockbuild helped push the Opec basket price down to $50.32/bl in March from $53.37/bl in February. The lower prices and stubbornly high stocks are prompting some Opec and non-Opec members to consider extending the production cuts for six months from July.
Venezuelan president Nicolas Maduro, who says Opec and non-Opec compliance with their targets was over 94pc in the first half of March, wants the agreements extended for six months and more non-Opec producers to join in. "We are already talking with Opec and non-Opec producers on extending our commitment for a further six months," Maduro says. This is "necessary to stabilise the market and promote the progressive, permanent and stable recovery of prices, so that needed investments can be made to continue to build a secure and stable world in the energy field", he says.
A number of Opec countries including Saudi Arabia, Kuwait, Iran and Algeria have indicated that they would support an extension if market conditions warrant it. A decision to extend the agreement will be taken only if all participating countries are on board, Kuwaiti oil minister Issam al-Marzouq says.
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|Mar||Feb ||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|