Opec+ compliance up to 116pc in October: Update

Adds details throughout on potential price impact of SPR release

The Opec+ group's compliance with its crude output restraint agreement rose last month as several members struggled to meet their higher quotas. It has left some key consumer nations mulling strategic stock releases.

Opec+ compliance averaged 116pc in October, compared with 115pc in September, according to a document seen by Argus. The 10 Opec participants were 121pc compliant with their October commitments, up from 115pc in September, while conformity among their non-Opec counterparts fell to 106pc from 114pc. An Opec+ delegate said the figures exclude Mexico, which has not accepted a formal quota since July 2020 but remains part of the coalition and is sometimes factored into internal Opec+ calculations.

The figures are broadly in line with Argus estimates, which put total compliance at 115pc in October, with Opec participants at 120pc and non-Opec at 107pc.

The overcompliance is partly driven by Nigeria and Angola struggling to grow production. Both were around 240,000 b/d under their respective Opec+ targets last month.

While overcompliance was welcomed last year when demand collapsed in the wake of the pandemic, the Opec+ group is now facing pressure from key oil-consuming countries to raise output faster to soften global oil prices. The US in particular has been pushing for higher Opec+ supplies and is now mulling a series of domestic countermeasures including a potential release from its Strategic Petroleum Reserve (SPR).

Two Opec+ delegates said reports that the US has invited China and South Korea to consider co-ordinated SPR drawdowns are unlikely to pressure the coalition to hike production any faster, as the group considers the market to be well supplied. Opec+ ministers have previously expressed concern about a prospective seasonal surplus in the first quarter next year, with Opec secretary-general Mohammed Barkindo saying earlier this week that global oil inventories could start to build as early as December.

If Washington were to co-ordinate an SPR release with other countries, the US would effectively be behaving like a member of the Opec+ deal in trying to boost supply and reduce stocks, according to one delegate.

Taking stocks

The US administration has not confirmed that it has broached the possibility of a co-ordinated SPR release, but "[we] have discussed with a range of countries, including China, ... the need to meet the supply demands out there over the longer term as well", the White House said yesterday.

During a virtual summit on 16 November, US president Joe Biden and his Chinese counterpart, Xi Jinping, discussed possible co-operation on stabilising energy markets and addressing climate change. The same day, Stephen Nalley, acting administrator of US government agency the EIA, said the effect of a unilateral US SPR release would be "pretty short-lived, [for] a couple months".

"There are limits to what can be released in a short-term situation and we did some recent analysis where it looked like somewhere between 15mn bl to 48mn bl, for a short period of time, would bring down the price of crude oil about $2/bl," Nalley said.

US bank Goldman Sachs argues that a prospective joint SPR release of 20mn-30mn bl would prove to be a fleeting solution. "Our view remains that such a release would only provide a short-term fix to a structural deficit, is now fully priced-in following the $6/bl move lower in recent weeks ... and would not help the slow global supply response that only higher oil prices can overcome," the bank said.

Argus' chief economist David Fyfe stressed that the Biden administration is under pressure to be seen addressing inflation and high gasoline prices ahead of the holiday season, but he too thinks the impact of a strategic stock release would be limited. "These reports of imminent strategic stockdraws are already factored into Brent prices, which are now $6-7/bl off their late-October high point," he said. "The question is whether there is really any more substantial price downside to be had from a limited stock release."

Fyfe estimates that OECD oil inventories already began building in October, and notes some market reports that Opec+ volumes are "starting to move more strongly higher" this month. "It wouldn't surprise me if key members began leaking a bit of extra oil onto the market, even if they avoid official announcements to that effect on 2 December [when Opec+ ministers next meet]," he said. "The Saudis and others may not want to risk 'baking in' an accelerated tapering of cuts when market fundamentals next year look softer than they are now."

By Ruxandra Iordache and Haik Gugarats