Opec+ has big task to meet compliance pledge this month

The Opec+ group faces the inconceivable task of having to cut its collective output by more than 2.3mn b/d below its target this month to meet its pledge that members will fully compensate, by the end of September, for previously exceeding their targets under the production restraint deal.

This is one of the conclusions to have come out of yesterday's meeting of the Opec+ Joint Technical Committee (JTC), according to its final report seen by Argus.

The JTC has derived a cumulative 2.375mn b/d figure to be cut this month by adding the individual monthly amounts by which Opec+ members exceeded their quotas in the first five months of the agreement that began on 1 May. Opec and its 10 non-Opec partners committed to cutting their collective output by 9.6mn-9.7mn b/d from May to July; by 7.7mn b/d in the August-December period; and by 5.7mn b/d from January 2021 to April 2022.

Last month, the JTC calculated overproduction in the May-July period at 2.3mn b/d, and its latest compliance figures show why no ground was made up in August. While overall conformity with the deal was 101pc — 102pc by participating Opec countries and 99pc by non-Opec countries — this falls to 95pc when accounting for the additional pledged compensatory cuts, suggesting they were not fully reached.

Saudi oil minister Prince Abdulaziz bin Salman stressed ahead of last month's JMMC meeting that members which had produced above their quotas to that point were required to compensate fully for that by the end of September. The JTC reiterated that at its meeting yesterday.

Of the 2.375mn b/d 'overproduced' in May-August, 1.64mn b/d was from Opec countries and 734,000 b/d was from non-Opec. Among Opec countries, Iraq has the largest debts to clear, having produced 698,000 b/d above its quota over the first five months. Iraq said earlier this month that it would ask today's JMMC for an extension to its compensation deadline to the end of November.

Nigeria and Gabon are the next biggest under-performers, having produced 283,000 b/d and 190,000 b/d above their quotas respectively.

Russia has the biggest debt to clear among non-Opec countries, with 333,000 b/d, followed by South Sudan with 184,000 b/d and Kazakhstan. The only participants to have fully complied throughout are Algeria, Kuwait, Saudi Arabia, Bahrain, Malaysia and Oman, according to the JTC.

In August, the UAE was the Opec+ group's worst performer, according to the JTC, producing 182,000 b/d above its quota. Russia and South Sudan produced 45,000 b/d and 39,000 b/d above their respective quotas. This was somewhat compensated by underproduction by others, most notably Saudi Arabia, Iraq and Nigeria, which collectively produced 277,000 b/d below their quotas. The latter two, however, will have been doing so as part of their own compensation plans after having over produced previously.

The JTC said that underperformance in compliance stood at 331,000 b/d in August and stressed that this continued under-conformity "significantly impedes the objective of removing the global stock overhang."

Assuming full conformity for the remainder of this year and the entirety of next, the JTC said it expects OECD commercial inventories to begin falling this quarter and to stand at 123mn bl above the latest five-year average in the fourth quarter. In 2021, it sees OECD commercial stocks continuing to fall, but still be 40mn bl above the latest five-year average in the first quarter. It expects inventories to drop below the five-year average in the second quarter of 2021 and remain there until the end of the year.

The JTC typically meets ahead of the Joint Ministerial Monitoring Committee (JMMC), which observes compliance and in turn gives policy recommendations to the full Opec and Opec+ ministerial conferences. The JMMC is scheduled to meet today at 14:00 Vienna time (12:00 GMT).

By Nader Itayim