Kuwait's state-owned KPC has informed its crude customers of a 22pc cut in their contractual volumes for the second half of the year, according to one source, in line with its commitments under the new Opec+ production restraint agreement that comes into effect tomorrow.
The Opec+ alliance, which brings together Opec's 13 members with 10 non-Opec producers led by Russia, signed off on a landmark two-year agreement earlier this month to take a combined 9.7mn b/d off the market in May and June to counter the dramatic fall in global oil demand caused by the Covid-19 pandemic.
The production cuts will moderate to 7.7mn b/d in the second half of this year, and to 5.8mn b/d from January 2021 to April 2022. The cuts are being calculated from each member's 2018 baseline, apart from the Opec+ group's two de facto leaders Saudi Arabia and Russia, which will each have an 11mn b/d reference level.
Under the terms of the deal, Kuwait has committed to cap its crude production at 2.16mn b/d in May and June, down by 641,000 b/d from its 2.81mn b/d baseline. In the second half, its cap will rise to 2.29mn b/d.
But the size of Kuwait's actual cut is likely to be bigger than the 641,000 b/d stipulated under the deal, given that its production was above its 2.81mn b/d baseline in March and early April.
Kuwaiti production averaged 2.84mn b/d in March, according to Argus estimates, nearly 200,000 b/d above the 2.66mn b/d it produced in February. This was Kuwait's highest average monthly production since December 2016, just before the formal start of Opec's co-operation with its non-Opec allies in January 2017.
Production rose as high as 2.95mn b/d in the final few days of the month, according to one source close to the matter, and was scheduled to rise as high as 3.15-3.2mn b/d this month.
But the new Opec+ agreement struck in early April prompted a rethink of its plans, with oil minister Khaled al-Fadhel saying last week that the country had already begun reducing supplies to its international buyers, well before the formal start of the deal on 1 May.
Kuwait will be compliant with its 2.16mn b/d Opec+ cap from the first day of the deal, the source said.
By Nader Itayim
