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Non-Opec producers signal output cut compliance

16 Dec 2016 13:35 GMT
Non-Opec producers signal output cut compliance

Singapore, 16 December (Argus) — Smaller non-Opec oil producers are publicly committing to production curbs or informing their buyers of planned exports cuts, in a sign of compliance with pledges to back Opec's six-month output restraint pact.

Non-Opec producers, led by Russia, pledged a total output reduction of 558,000 b/d, supporting an Opec deal to reduce the group's output by 1.2mn b/d, at a gathering of Opec and non-Opec producers in Vienna on 10 December.

Oman's Ministry of Oil and Gas (MOG) has informed term customers in Asia-Pacific that the country will adhere to the cuts although only some term customers are expecting to see lower allocations in January, while other will be given full volumes. At least one term lifter was told that January volumes would be cut by 5pc, the operational tolerance allowance for cargoes exported by MOG. Oman agreed to reduce its oil production by 45,000 b/d. Oman produces just under 1mn b/d and around 95pc of the country's 830,000 b/d of exports go to the Asia-Pacific region.

Malaysia is expected to comply with its commitment to cut production by 20,000 b/d, but state-owned Petronas has not sent details of any January export cuts to term lifters. The company is expected to contact buyers on a case-by-case basis. It is unclear if Malaysia will factor into any cut the start of production at the 60,000 b/d Shell-operated deepwater Malikai oil field this week. Malaysia produces around 680,000 b/d of crude.

Contributions from Brunei Darussalam, which produces 130,000 b/d have yet to be confirmed, although the country was one of the 11 non-Opec producers that pledged to cut production. State-owned Petroleum Brunei is likely to contribute by allowing natural declines in oil fields to trim output, traders in Asia-Pacific who trade crude from Brunei said.

Sudan has also pledged the cut output by 4,000 b/d from 133,000 b/d. Oil minister Mohamed Zayed Awad's mention of his country's cut followed publication of a list of countries that had agreed to reduce output and the size of their respective contributions by the Algerian state-owned news agency. While a number of individual countries have since confirmed those numbers, no official list was given in the statement issued at the end of the meeting, nor the baseline numbers from which the cuts would be made. Awad also said that neighboring South Sudan had pledged to cut by 5,000 b/d from 138,000 b/d.

Other non-Opec countries that pledged cuts, such as Mexico and Azerbaijan, also face natural output declines, so their expected reduction are unlikely to be the result of deliberate measures in support of Opec's cut. Kazakhstan said yesterday it would phase a forecast production rise in 2017 of 9pc so that the increase comes in the second half of the year. Mexico's deputy oil minister said: "We have been very clear that [Mexico's] managed decline that was mentioned at the meeting will take place in the context of Pemex's own plan."

Russia's headline cut commitment of 300,000 b/d over the first half of 2017 is fraying after the country's oil minister Alexander Novak said production would be cut by only 200,000 b/d until the end of the first quarter, and then reduced by a further 100,000 b/d. Lower winter demand, spring maintenance and a cut in production at low efficiency operations in western Siberia with high water levels are expected to help Russia's trim output.

Opec producers have been reiterating their intention to cut oil production through direct communication with their term buyers.

Opec's top exporter Saudi Arabia is expected to reduce January term exports to buyers in the US, Europe and some non-strategic customers in Asia, with cuts expected to fall within the contractual 10pc tolerance levels. The country is expected to allocate full term volumes to its main customers in the strategically important Asia-Pacific region. Saudi Arabia has pledged to cut 486,000 b/d as part of the Opec deal.

Kuwait's state-owned KPC has told its term customers they will no longer be allowed to load additional crude on top of their agreed volumes. KPC term customers had the right to take 5pc extra each month, in line with KPC's contractual specifications. Removing this right would go some way toward Kuwait meeting its agreed share of the Opec cuts, which are some 131,000 b/d, that begin in January.

Other Opec producers such as UAE's Abu Dhabi and Qatar have also informed term importers of their crude that they intend to cut production.

Opec crude output reached a record high of nearly 34.5mn b/d last month, up by almost 500,000 b/d compared with October. If the group's December exports remain on a par with last month, Opec will need to reduce production by 2mn b/d to hit its stated output target of 32.5mn b/d.