Opec+ production slips, driven by Saudi drop

Opec+ production fell in January, pulled down by lower Mideast Gulf supplies and a slight decline in Russian output.

Production slipped by 250,000 b/d to 38.06mn b/d, more than 2mn b/d below the group's combined quota (see table). This was the biggest mismatch between actual and targeted production since October, when the group's collective target was much higher.

Production by non-Opec members fell by 110,000 b/d thanks to lower supplies from Bahrain, Malaysia and Russia. Opec members' production was 140,000 b/d lower as Saudi output fell by 220,000 b/d, under pressure from a steep drop in exports and a maintenance-driven decline in refinery throughputs. Iraqi production edged down after bad weather disrupted Basrah loadings and outages curbed runs at a number of refineries in the country.

These falls were partly offset by a rebound in Nigerian output, which increased for a fourth consecutive month to 1.38mn b/d. But a recovery in Bonny Light output looks to have stalled, possibly because of the shutdown of one of the grade's supply pipelines. Nigeria was still producing 360,000 b/d below quota in January despite the monthly increase, while Angola fell 310,000 b/d short. Saudi production was 230,000 b/d under target.

Constrained supply and strengthening Chinese crude demand could lead to a rebound in oil prices to about $100/bl in the second half of this year, Iran's national representative to Opec, Afshin Javan, says.

"Opec is moving in the right direction," Javan says, in reference to the Opec+ decision in October 2022 to make a nominal 2mn b/d cut to the group's overall production ceiling from November until the end of this year. "Why Opec did it was because it was not very optimistic about the demand side," Javan says.

Complex outlook

Opec+ has no plans to change course on production policy in response to Russia's decision to cut crude output next month, according to delegate sources. Russian deputy prime minister Alexander Novak said that Moscow is planning a 500,000 b/d "voluntary" cut in March, which he said is designed to "contribute to the recovery of market relations" following the G7-led price caps on Moscow's crude and product sales.

This will put Russia substantially below its Opec+ quota. Russia was already producing around 700,000 b/d below its target in January, Argus estimates, although output was down by only 20,000 b/d in January. And February crude production is running at the same pace as the previous three months, according to Novak, who put November-December output at 9.8mn-9.9mn b/d.

The pace of China's recovery, following Beijing's decision to abandon its zero-Covid policies in December, is another major uncertainty. There are signs that the economy of the world's largest crude importer is bouncing back, setting a strong floor under oil prices, but it could be several months before there is a full recovery to pre-pandemic levels. Opec's latest forecast is for Chinese oil demand to increase by 510,000 b/d this year, after an estimated 210,000 b/d decline in 2022.

The Opec+ coalition's Joint Ministerial Monitoring Committee (JMMC), which is made up of key Opec+ ministers, is next scheduled to meet on 3 April. The JMMC is not a decision-making body but it can make recommendations based on its assessment of the oil market and also has the authority to recommend holding an extraordinary ministerial meeting if market conditions warrant. As it stands, Opec+ is not due to hold a ministerial conference until June.