Opec+ starts historic deal with 87pc compliance: Update

adds Novak comments

The 23-nation Opec+ coalition kicked off its two-year production restraint plan with an 87pc compliance rate last month, according to Opec delegates. This is broadly in line with Argus' estimate two weeks ago.

The group set out to reduce its collective crude output by 9.7mn b/d last month, largely from an October 2018 baseline. It is targeting the same cut this month, followed by a 9.6mn b/d reduction in July. Non-Opec participant Mexico, which agreed to cut by 100,000 b/d in May-June, will not contribute to next month's cut.

Opec members Iran, Libya and Venezuela are exempt from quotas. The rest of Opec achieved an 84pc compliance rate in May, according to two delegates. One delegate added that non-Opec conformity was 92pc last month. Argus had estimated that Opec participants met 85pc of their pledged cuts and that their 10 non-Opec allies hit 96pc, leaving overall compliance for the Opec+ group at 89pc last month.

Russian energy minister Alexander Novak today confirmed that the Opec+ group achieved high, but imperfect compliance in May: "Talking about conformity levels and preliminary numbers, I can say that conformity is on a very high level, closer to 89pc, and this is very encouraging. But at the same time… there are some laggards, and we will be discussing this tomorrow as well," he said in a Bloomberg TV interview.

The high level of compliance was underpinned by the group's de facto leaders Saudi Arabia and Russia sticking or coming close to their quotas. Non-compliant members — such as Iraq, Kazakhstan and Nigeria — will be required to make up surplus volumes in May and June with additional cuts over July-September.

Kazakhstan said it will compensate for its excess production in May with extra reductions in August and September, while Nigeria said it expects to hit its 1.41mn b/d quota by mid-July. Iraq said it will curtail crude exports to just 2.8mn b/d this month and has asked the the Kurdistan Regional Government (KRG) — which has been reluctant to contribute to Baghdad's cuts in the past — to limit its crude exports to 370,000 b/d.

The Opec+ Joint Technical Committee (JTC), which studies market fundamentals, is meeting today. The group's Joint Ministerial Monitoring Committee (JMMC), which tracks compliance, will assemble tomorrow.

By Ruxandra Iordache and Nader Itayim