Opec+ output stems losses in May

Output from Opec+ deal participants stemmed losses after three months of decline, but remained 2.79mn b/d below the coalition's May target, an Argus production survey finds.

Opec+ quota-bound countries produced 37.58mn b/d last month, up by 30,000 b/d from April. Output trends diverged, with half of the quota-bound Opec participants recording monthly falls. Declines were sharpest in Iraq, where exports are curtailed logistically, and in Nigeria — where key stream Bonny Light remains disrupted and the Forcados terminal has experienced loading difficulties.

Baghdad's failure to meet its 4.46mn b/d May quota comes in the first month when it, Saudi Arabia, Russia, Kuwait and the UAE had higher baselines and quota increases. Dwindling capacity has left the Opec+ group sharply behind monthly targets, with the shortfall consistently widening since December.

Much of the remaining ability to increase production stays with Saudi Arabia and the UAE. The latter's minister Suhail al-Mazrouei this week admitted "the situation is not very encouraging when it comes to the quantities that [Opec+] can bring."

Deal-exempt members declined across the board, with Libya down by 150,000 b/d on the month because of ongoing blockades. The June outlook was briefly revived by the intermittent restart of 300,000 b/d El Sharara, but has worsened in the past 24 hours with protest-led declines at the 220,000 b/d Sarir field and the threatened closure of the Marsa el-Hariga, Es Sider and Ras Lanuf ports.

In Iran, production was down by 20,000 b/d as shipments struggle to compete with heavily-discounted Russian Urals for Chinese buyers. Prospects for a ramp-up of Iranian flows appear increasingly curtailed by an escalation in tensions between Tehran and the International Atomic Energy Agency (IAEA). Earlier this week, Iran disabled two IAEA compliance monitoring cameras, earning further calls from Germany, France and the UK for Tehran to conclude a new Joint Comprehensive Plan of Action (JCPOA) nuclear deal "while it is still possible".

Non-Opec flows made a rare 200,000 b/d rebound, led by the subgroup's largest producers, Russia and Kazakhstan. They remained 1.69mn b/d below the May target. Kazakh crude production rose by 120,000 b/d in May, as problems at the CPC terminal in Novorossiysk ended. Production dropped off again late in the month, a prelude to heavy maintenance at the Kashagan field that has already resulted in crude output falling below 1.2mn b/d.

Moscow's production gained 100,000 b/d in May, in line with deputy prime minister Alexander Novak's forecast. Russia is increasing exports, as domestic refiners cap throughputs. Urals exports rose by 100,000 b/d in May, given greater appetite from China and Russian-owned refineries in Europe, Vortexa data show. But shipments of light sweet Sokol crude from ExxonMobil's Sakhalin 2 project stopped in early May.

Self-censorship by buyers and the EU bloc's decision to phase in an embargo on Russian seaborne crude imports within six months cast a shadow over Moscow's long-term supply outlook. UK-based bank Barclays assumes Russian crude production could shed 1.5mn b/d by the end of the year. The Opec+ Joint Technical Committee (JTC) further flagged market tightness last week, when it revised down its global crude surplus forecast by 500,000 b/d to 1.4mn b/d in 2022, according to delegates.

Uncertainty looms over supply and demand indicators — an Argus survey found Chinese refineries' crude runs probably fell by 200,000 b/d from April to 12.4mn b/d in May, because of Covid-19 lockdowns. Economic hub Shanghai reimposed some pandemic restrictions this week, after briefly easing them at the start of the month.

"We need to remember that China is not back yet. The risk is, when China is back, what is going to happen?" al-Mazrouei said. Last month, Fatih Birol, executive director of energy watchdog IEA assessed that ongoing low Chinese demand was "one hope" to avoid an oil deficit this summer, if US, Canada, Brazil and Mideast Gulf producers are unable to boost supplies.

By Ruxandra Iordache