Opec+ output still well below target

Last month's hefty production increase still leaves the group well short of returning its Covid-19 supply cuts to the market, writes Ruxandra Iordache

Opec+ members subject to quotas raised their crude output by 500,000 b/d in July as part of the final stage of unwinding their Covid-19 supply cuts.

But the group's production of 38.70mn b/d was still 2.75mn b/d below its target for the month, according to Argus estimates. Dwindling spare capacity, underinvestment and sabotage have crippled the coalition's ability to return the 9.7mn b/d it removed from the market in May 2020. Opec+ will nominally complete that process this month, when its collective ceiling will rise by a further 648,000 b/d. It has agreed to lift output by a further 100,000 b/d, shared pro rata, in September.

Among Opec members, Saudi Arabia achieved the largest monthly output increase in July, made possible by high exports and a seasonal rise in domestic crude burn for air conditioning. Saudi seaborne exports surged by more than 550,000 b/d on the month to about 7.37mn b/d in July. Between 60,000 b/d and 120,000 b/d of these shipments may have emerged from stocks, analysts estimate. Saudi Arabia can take its production up to 11mn b/d this month — a level it has reached only twice, according to its self-reported submissions to the Joint Oil Data Initiative (Jodi) covering January 2002-May 2022. Kuwait also sharply boosted exports, to 1.86mn b/d, after months of prioritising refinery run increases.

Nigeria underperformed in July. Its output was 570,000 b/d under the month's quota. Oil minister Timipre Sylva said in late June that Abuja hoped to meet its production target by the end of August, but Nigeria made no headway in July, when force majeure was in place at the Bonny Light export terminal and output of the Forcados and Bonga crude streams was reduced.

Libya, which is exempt from the Opec+ deal, raised output by 70,000 b/d after lifting force majeure restrictions at all oil fields and terminals in mid-July. Output has been recovering since, with exports resuming from the Es Sider, Ras Lanuf, Mellitah and Zueitina terminals, although lingering domestic political tensions continue to cast a shadow over the long-term stability of Libya's oil sector.

Venezuelan production declined by 60,000 b/d after a fire knocked out a natural gas pipeline key to the Jose refining and petrochemical complex. Caracas has been struggling to process recent Iranian crude shipments sent to state-owned PdV's 140,000 b/d El Palito refinery, which have had to be rerouted. Analysts say sanctioned Venezuelan and Iranian grades are facing stiff competition from heavily discounted Russian crude, which is making its way to refiners in Asia-Pacific.

Falling short

Non-Opec output rose by 220,000 b/d in July. Russian production grew marginally on the month but was still more than 1mn b/d below its country target. Refinery runs have increased in recent months, and product stocks in Russiarose by more than 500,000 bl in July, largely driven by diesel. Crude exports fell by just over 200,000 b/d — consisting mostly of Urals — in July, but seem to be recovering in August, according to preliminary data from oil analytics firm Vortexa.

A halt to Russian crude shipments through the southern arm of the Druzhba pipeline from 4 August appeared to have been resolved by 10 August. The pipeline branch serves Hungary, Slovakia and the Czech Republic.

Kazakhstan restored production at the offshore Kashagan field in mid-July, pushing the country's output to almost 1.4mn b/d. But Kashagan's return was cut short by a gas leak discovered on 3 August, reducing output by more than 200,000 b/d. The field resumed production on the night of 9-10 August. Kazakhstan, the non-Opec group's second-largest producer, has been falling sharply behind its quota since March. The return of Azerbaijan's Azeri-Chirag-Guneshli project from maintenance in late June added 40,000 b/d.