Opec+ gets historic output deal off to a good start

The Opec+ coalition made a strong start to its new output restraint agreement, with the 20 participating countries falling just 1.1mn b/d short of their collective target to remove 9.7mn b/d of crude from the market last month, largely from an October 2018 baseline.

Combined output from the deal participants was 35.2mn b/d in May, down by 8.8mn b/d from April and by 8.6mn b/d from the baseline, Argus estimates. This puts May's overall compliance at 89pc, with the 10 Opec participants achieving 85pc of their pledged cuts and their 10 non-Opec counterparts hitting 96pc.

Overall Opec production — including Iran, Libya and Venezuela, which are exempt from the deal — dropped by around 6.2mn b/d on the month to 24.2mn b/d, the lowest since April 2002.

Saudi Arabia, its traditional Mideast Gulf allies Kuwait and the UAE, and this year's Opec presidency holder Algeria maintained their previous discipline with output obligations, achieving 90-102pc compliance.

Saudi production fell by 3.1mn b/d from April's record high to 8.5mn b/d in May — the lowest since November 2010 — with exports from Saudi terminals down by just under 3mn b/d on the month to 6.3mn b/d, according to preliminary tracking data. Shipments from the Neutral Zone region, which Saudi Arabia shares with Kuwait, rose by 14,000 b/d to 127,000 b/d last month, although some of May's exports could have come from production in previous months.

Opec's chronic laggards Iraq and Nigeria continued to underperform, meeting just 52pc and 60pc of their targets, respectively. Baghdad implemented cuts at southern fields run by state and international oil firms last month, but ongoing budget wranglings meant there was no meaningful contribution from the semi-autonomous Kurdish region in the north. Argus estimates that Nigeria was 170,000 b/d above its target in May, broadly in line with the oil ministry's figures. But Nigeria's current output is well below its quota and that "will translate to full compliance by end of June", the ministry said earlier this week.

Kazakhstan was the standout quota-buster on the non-Opec side, meeting just 63pc of its pledged cut. But this was more than offset by a strong performance from other non-Opec participants, notably Russia. Moscow has been slow to reduce output at the start of previous Opec+ deals, but it cut production by an impressive 1.8mn b/d last month compared with April, leaving it just 100,000 b/d above its May quota of 8.5mn b/d. Mexico, whose staunch objections to deeper cuts prolonged the Opec+ discussions in April, was 135pc compliant with its pledge to cut 100,000 b/d.

Opec and the wider Opec+ group have brought forward online meetings to discuss the production restraint deal to tomorrow from the initial schedule of 9-10 June.

Discussions will centre around whether to extend the 9.7mn b/d cut beyond June or stick to the original plan of moderating the reduction to 7.7mn b/d in the second half of the year. Saudi Arabia and Russia support a one-month extension, according to an Opec delegate. But countries that overproduced in May will be asked to pledge compliance going forward and agree to an as yet undetermined "compensation mechanism", the delegate said.

By Ruxandra Iordache