Opec+ May output up as quotas rise, Riyadh unwinds cut

The Opec+ group added 440,000 b/d to their collective production in May, as all 19 participants to the output restraint deal received their first round of quota increases since January and Saudi Arabia began unwinding its additional cut.

The group produced 34.69mn b/d last month, the highest since May 2020 according to an Argus survey. Opec+ compliance slipped to a four-month low of 113pc, as Opec conformity eased to 124pc and the non-Opec level rose to 94pc.

Compliance stayed firm because of a 350,000 b/d increase in the collective May Opec+ target, which the coalition will follow up with another 350,000 b/d rise this month and a 441,000 b/d addition in July. This was the first all-member quota increase since January, although Russia and Kazakhstan secured higher targets for the February-April period.

Last week's Opec+ ministerial meeting agreed to continue with short-term output increases, while acknowledging that the Covid-19 pandemic continues to cloud demand prospects. It did not consider the potential return of Iranian crude, but its decision to again hold monthly meetings suggests it is preparing for any eventuality. Iranian output has risen consistently since November, and increased by 40,000 b/d in May.

Venezuela, which like Iran is exempt from the restraint deal, added 20,000 b/d of output as country sought to boost exports ahead of a new Chinese tax on diluted bitumen, which is often composed in part by Venezuela's heavy sour Merey crude.

Around 420,000 b/d of May's Opec output increases came from Saudi Arabia, which began to bring back some of the 1mn b/d additional cut that it implemented in the February-April period. Riyadh returned 250,000 b/d of this in May, will bring back 350,000 b/d this month and will return 400,000 b/d in July. Some of May's increase was visible in exports — provisional tracking shows Saudi loadings rose by 335,000 b/d from April to a four-month high of 5.933mn b/d in May, factoring in Riyadh's part of Neutral Zone shipments and discounting Bahraini exports from Saudi terminals.

Saudi exports could be capped over the next few months, as it and other Mideast Gulf producers face higher calls on their crude to meet power demand during the hot summer months. Saudi Arabia's self-reported Jodi data indicate that its direct consumption averaged 608,000 b/d between June-September last year, peaking at 702,000 b/d in August, compared with 330,000 b/d in the January-May 2020 period.

Crude production fell in May from west African countries, notably from Angola where output of 1.07mn b/d was the lowest since February 2005. Ongoing production declines at mature fields and underinvestment led to falls in production from Angola's four largest assets: Clov, Cabinda, Nemba and Girassol. Combined exports of grades produced at these fields averaged 409,000 b/d in the first five months of this year, compared with 468,000 b/d and 538,000 b/d in full-year 2019 and 2020, respectively.

Russia improved its compliance after two months of declines, keeping its output largely steady against a 39,000 b/d quota increase and making good on deputy prime minister Alexander Novak's pledge for improved conformity. A heavy maintenance programme lowered Russian refinery runs by over 200,000 b/d last month, although this did not translate into a rise in crude exports — May shipments rose by just over 50,000 b/d, almost all from Baltic Sea ports.

Russia, which is de facto leader of the non-Opec part of the restraint deal, has only once fully met its monthly obligations under the latest agreement. It was 101pc compliant in February, but has otherwise averaged 96pc since the latest iteration of the deal began in May 2020.

Opec+ will reconvene to discuss August quotas on 1 July, and there are already signs that some may push for further increases. Russian private-sector Lukoil's president Vagit Alekperov has called on the coalition to add 500,000 b/d after July, and then the same amount every three months to avoid constraining demand with high prices. Novak, meanwhile, said that it is too early for the group to determine its output policy beyond next month.

By Ruxandra Iordache