JMMC recommends capping Nigerian production
OPEC may increase its efforts to moderate the global oil market, based on the results of its meeting in St. Petersburg today.
OPEC’s oil cuts were implemented with the hope that temporarily reduced output would allow global inventories to return to normal levels and markets to stabilize. However, in large part this has not occurred yet. Much of the blame for this has been placed on U.S. shale, which has added around 675 MBOPD of production since January.
Compliance falling, exempted countries growing production
However, OPEC itself is responsible for a significant amount of the minimal results seen so far. Compliance is falling, and dipped below 100% for the first time in three months. The country with the second-largest pledged cuts, in particular, is producing beyond its commitments.
Iraq pledged to cut production by 210 MBOPD, which is second only to the 486 MBOPD Saudi cut. However, in June Iraq had cut less than 60 MBOPD of production, making it the least-compliant OPEC country.
Source: EnerCom Analytics
In addition, Libya and Nigeria, which were exempt from cuts, have been producing more and more. Each country was plagued by unrest in late 2016 that kept oil production low. They have since been able to reestablish a significant amount of production, and have added a combined 458 MOBPD relative to Q4 2016 levels.
Nigerian production may be capped at 1.8 MMBOPD
OPEC appears to be taking aim at these problems, based on statements from the Joint OPEC-Non-OPEC Ministerial Monitoring Committee’s (JMMC) St. Petersburg meeting. Nigeria has agreed to join the deal once its production stabilizes at 1.8 MMBOPD, up from the 1.7 MMBOPD the country is producing now. While this could mean a cut to production, it is more likely that this would cap Nigeria’s production at 1.8 MMBOPD. The JMMC did not recommend that Libya joint the cuts however, as its’ current production is well below the 1.4-1.6 MMBOPD that the country produced before unrest began in 2011.
According to Reuters, Saudi Arabia will put pressure on less compliant countries. “Some countries continue to lag which is a concern we must address head on,” the Kingdom’s Energy Minister said. So far, Saudi Arabia has produced less than it has pledged to, in an effort to make up for other, less committed countries.
Saudi Arabia exporting 1 MMBOPD less than last August
Saudi Arabia will continue its current strategy of reducing exports to target global inventories. According to the country’s Energy Minister, Saudi Arabia will limit exports to 6.6 MMBOPD in August. This is 1 MMBOPD lower than at this point in 2016, meaning it may have a significant effect. Lower exports from the Kingdom should drive countries to draw on their inventories during the peak summer driving season.
Extending cuts an option
The JMMC stated that extending the cuts beyond Q1 2018 should be an option for OPEC, as markets may not have rebalanced by then. Saudi Arabia’s Energy Minister remarked that oil producers should arrange a smooth landing from the deal if cuts are not extended, as suddenly adding more than 1 MMBOPD to the market will likely shock the markets.
EnerCom conference presenters will discuss the latest OPEC moves
At EnerCom’s The Oil & Gas Conference®, several experts will be making presentation about OPEC’s changing influence on global energy markets. Tom Petrie, founder and CEO of Petrie Partners, and John Hofmeister, former president of Shell Oil Company, are keynote presenters who are industry veterans who can provide insight as to OPEC’s changing influence, its current strategies and the member-non-members group’s effect on balancing global supply, global oil prices, market share and how fast-growing U.S. shale production is changing the global market equation.
To register for The Oil & Gas Conference®, please visit the conference website. The EnerCom conference is Aug. 13-17, 2017 in Denver, Colorado.
