Staying the course

Author Toby Shelley

The official data provided — or not — to the Opec secretariat by member countries each month are always gnomic. Never mind the veracity — or lack thereof — what are the messages being sent to fellow members and the wider market?

The official data provided — or not — to the Opec secretariat by member countries each month are always gnomic. Never mind the veracity — or lack thereof — what are the messages being sent to fellow members and the wider market?

In the dim and distant past, claimed production levels only emerged in response to questioning or to make a point, usually in the run-up to Opec meetings. The claims were modulated by two factors. One was the degree to which a member country wanted to be seen to be complying with or snubbing its quota. The other was pre-positioning for the next round of quota allocations: Kuwait and the UAE sought parity with each other as did Iraq with Iran while the likes of Libya clung to production numbers that justified capacity assessments. 

Venezuela in its overproducing heyday in the 1990s showed its disdain by not providing data. Caracas looked to have resumed the dumb insolence approach late last year, providing no data for many months. The secretariat has published “direct communications” from members about their production in a monthly table endorsement in its Monthly Oil Market Report since April 2012. But today’s MOMR shows Venezuela has filled in most of the blanks, even if it couldn’t bring itself to give a January number, so perhaps we should assume incompetence rather than conspiracy this time round.

The big message from the numbers, which are reported without comment or endorsement in the MOMR, is that, collectively, member states say their production in January was some 400,000 b/d down on December, making the 30mn b/d ceiling look like less of a fiction.

But you don’t have to drill down far to see another more telling message. The core Mideast Gulf Arab states — that’s to say kingpin Saudi Arabia, plus Kuwait and the UAE — each said that their production in January was slightly higher in January than in December, following rises in December compared with November. And Opec reports that spot chartering from the Middle East rose in January.

Along with cuts to Saudi Aramco’s official formula prices for eastbound March cargoes, the production numbers reinforce Riyadh’s message that it and its allies intend to stay the course of defending market share rather than price. Ironically, Saudi Arabia and its allies, long concerned about the impact of an unfettered rise in Iraqi output and ambitions, may have been irked by Baghdad’s claim that its January output tumbled by over 300,000 b/d compared with December. If the aim is to inflict pain sharp enough and long lasting enough on competing producers, Riyadh will not be happy to see Opec output falling or, for that matter, Brent heading merrily back toward $60/bl. Just refer back to the Argus interview with Saudi oil minister Al Naimi in late December for a lesson in steely resolve.

For more information please contact OilBlog@argusmedia.com

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