Opec output slips to five-year low

Opec is keeping to its production plan and compliance by members with targets approached the 150pc mark in May

Opec production fell to a five-year low in May on involuntary declines by sanctions-hit Iran and Venezuela and further Saudi cuts. Output declined by 370,000 b/d to 29.77mn b/d in May — the lowest since March 2014 (see table).

Saudi production fell to 9.65mn b/d in May — more than 650,000 b/d below its 10.3mn b/d target and the lowest since December 2014. The country's production has now dropped by a staggering 1.45mn b/d since November, when it ramped up output to a record 11.1mn b/d as a pre-emptive move to offset an anticipated supply shortfall because of US sanctions on Iranian crude exports that took effect on 5 November. Washington's 11th-hour decision to grant some sanctions waivers led to a surge in global supplies in the fourth quarter that stymied Opec's efforts to rebalance the market.

"We are seeing a consensus emerging that we need to continue the supply management regime," Saudi oil minister Khalid al-Falih said on 7 June at the St Petersburg International Economic Forum. Russian oil minister Alexander Novak echoed his Saudi partner's concerns during the forum. "Uncertainty in the market has increased. Trade wars will lead to a slower rate of economy growth. As a result, oil demand growth may slow to 1mn b/d in 2019 compared with 1.3mn-1.4mn b/d expected earlier," he says.

"The exact volume and distribution, we will continue to discuss it within Opec and with our colleagues from the non-Opec group led by Russia," al-Falih says. "The decision we make in late June and early July is not going to be cast in concrete. If we need to adjust it in the second half, we can always do that."

The Opec/non-Opec alliance will decide on whether or not to extend the cuts beyond June at a meeting in Vienna, to be held either at the end of this month or at the beginning of July. Novak says the group may delay its gathering until after the G20 summit in Japan on 28-29 June, potentially in the hope that a possible meeting between US president Donald Trump and his Chinese counterpart Xi Jinping will shed greater light on the outlook for US-China trade.

Iran's floating armada

Sanctions-hit Iranian production declined by 250,000 b/d to 2.35mn b/d in May, the lowest since the end of the Iran-Iraq war in late 1988. Iran is expected to curtail production sharply in the coming months as storage fills up. Iran was blind-sided by Washington's decision to cancel sanctions waivers in late April, which has denuded Tehran of its already truncated customer base. The sanctions regime this time round is proving to be far harsher than the programme carried out when Barack Obama was president.

Tracking Iranian exports has become near impossible with transponders completely shut off. With most customers unwilling to break US sanctions, the Iranian tankers may be offloading at bonded onshore facilities or being used for floating storage, which jumped from 7mn bl to 20mn bl last month, a rise of 420,000 b/d.

Higher exports and refinery runs pushed Iraqi production up to 4.65mn b/d in May — in line with its October baseline. Baghdad has fully honoured its Opec commitment only once during this iteration of the restraint agreement, in March, when adverse weather conditions pulled exports down to a 33-month low.

Libyan output fell but stayed above the 1mn b/d mark for a third month, despite hostilities between rival political parties. Deteriorating economic conditions crippled Venezuelan production further, with much of last month's decline attributed to the Orinoco heavy oil belt. Nigerian production eased to 1.8mn b/d as damage to a pipeline shut off supplies from the Bonny terminal between late April and mid-May, while Amenam remains under force majeure.

Opec wellhead productionmn b/d
MayAprNew targetCut neededCompliance (%)
Saudi Arabia9.659.8010.31-0.66305
Congo (Brazzaville)0.320.320.320.0060
Equatorial Guinea0.120.110.12-0.01275
Total OpecϮ29.7730.14nanana
Ϯ Iran, Libya and Venezuela are exempt from the deal