Opec+ facing quota resistance ahead of ministerial meet

The Opec+ coalition is having to contend with growing frustration among some of its members about crude production quotas, just two weeks ahead of a challenging ministerial meeting that will decide the near-term future of the group's output policy.

Quota disputes have intensified since Opec+ began asking members to reimburse overproduction with additional cuts. Nigeria, one of the countries that owes compensatory cuts, had an informal request to re-evaluate its baseline turned down by the group's Joint Ministerial Monitoring Committee (JMMC) this week. The Nigerian request — based around disagreements over whether its Agbami stream should be classified as crude or condensate — was declined on the grounds that any attempt by a country to revise its quotas would create a "damaging mistrust in the credibility of Opec+" and would "open up the possibility for other countries… to request changes", according to a letter from Opec president Abdelmajid Attar. Such initiatives are "very worrying", one Opec+ source later told Argus.

Nigeria is not alone in calling for tweaks. A senior official in South Sudan's oil ministry told Argus last month that his country would like to renegotiate its Opec+ quota because some of its fields have resumed production since it joined the coalition.

The UAE has grounds for frustration too, having been pushed to compensate for exceeding its August quota despite joining Kuwait and Saudi Arabia in making extra voluntary cuts back in June. The compensatory cuts came at a considerable cost to state-owned Adnoc, which has repeatedly trimmed its fourth-quarter monthly crude allocations by up to 30pc. Still, reports this week that the UAE might be looking to exit the Opec+ agreement appear wide of the mark. "The UAE has always been a committed member to Opec and we have demonstrated this commitment through our compliance to the current Opec+ agreement. As a reliable and long-standing member of Opec, we have always been open and transparent in all our decisions and strategies in support of Opec," the UAE energy ministry said today, without disclosing Abu Dhabi's future intentions.

Besides the simmering frustration among some of the deal's participants, Opec+ also faces the challenge of how to respond to deal-exempt Libya's rapid revival in crude production since port and field blockades were lifted two months ago. Libya has already set out its stall, with state-owned NOC chairman Mustafa Sanalla saying the country will not be able to join the restraint pact until its output stabilises at 1.7mn b/d. But Saudi oil minister Abdulaziz bin Salman said this week that discussions over a quota for Libya could take place "once they go back to where they were prior to October [20]18". October 2018 is the baseline from which the majority of Opec+ production cuts are calculated. Argus estimates that Libyan crude output averaged 1.21mn b/d that month. NOC said today that production has already reached 1.25mn b/d.

Decision time

Libya's recovery, together with a resurgence in Covid-19 cases in recent months, is putting pressure on Opec+ to postpone a planned 2mn b/d increase in production in January. Earlier this week, the group's Joint Technical Committee studied several market scenarios for 2021, including ones in which existing output cuts are extended by three or six months. Several Opec+ sources have said the group needs to extend by "at least three months".

The JMMC — which monitors compliance and advises on strategy — ended its meeting this week without an immediate policy recommendation. After the meeting, the Saudi oil minister said the market is still too fluid for any decisions on Opec+ policy to be made now. The Opec and Opec+ ministerial meetings are scheduled to take place on 30 November and 1 December.

By Ruxandra Iordache and Nader Itayim