Compliance falls below 100%
OPEC’s grip on the oil market seems to be slipping away, as its newest Monthly Oil Market Report shows production rising, despite cuts.
In its MOMR, OPEC gives two sources of production, levels directly reported by companies and levels reported by secondary sources such as Platts. Each country’s directly reported values are not considered reliable, though, and most independent entities only consider secondary sources such as recognized industry data providers.
Based on secondary sources, total OPEC oil production increased by 393.5 MBOPD in June, adding to the current supply glut. A large part of this increase was due to Libyan production, which rose from 725 MBOPD in May to 852 MBOPD in June. Libya was joined by Nigeria, which added 96.7 MBOPD of production to markets in June. Other countries that added production included Angola, Iraq, Iran and Equatorial Guinea. Perhaps most notable among countries that increased production, however, is Saudi Arabia.
According to secondary sources in OPEC’s MOMR, Saudi Arabian oil production increased by 51.3 MBOPD in June. Based on direct reporting, Saudi production increased even more, 190 MBOPD. This may mark an end to the Saudi’s previous policy of making up for less-than-wholehearted commitment to cuts in other members.
Saudi Arabia, Angola ‘done’ with making up for other members
According to Bloomberg, in May Saudi Arabia was producing less than it had promised to in the original OPEC agreement. While the kingdom had only agreed to 486 MBOPD of cuts, actual May production indicated 604 MBOPD of cuts, 25% beyond the commitment. Angola decreased production by even more, exceeding its pledged levels by 77%.
Secondary production estimates, which Bloomberg relies on for its values, imply that while Saudi Arabian production still complies with the previous cuts, it is doing far less to make up for other countries. Instead of exceeding its pledged cuts by 118 MBOPD, the kingdom now is producing only 67 MBOPD less than it has agreed to. Angola has changed even more drastically, and now is not meeting its pledged cuts.
The production increases from Saudi Arabia and Angola mean they are not dragging OPEC to compliance. Total cut compliance dropped from 106% in May to 94% in June, breaking three months of overall compliance.
Source: EnerCom Analytics
Nigerian, Libyan recovery may be capped
This edition of the Oil Market Report illustrates why OPEC members are considering including Libya and Nigeria in any output cuts. Each country has been exempted from the current deal, due to unrest forcing production down. However, each country is getting its oil production under control. Compared to Q4 2016 levels, the two countries have increased production by a combined 458 MBOPD.
According to Bloomberg, Kuwait’s Oil Minister commented that both Libya and Nigeria may be asked to join in limiting production. OPEC members have invited the two producers to the July 24 meeting in St. Petersburg to discuss the stability of their production. If Libya and Nigeria agree to limit production it would remove two major sources of increasing supply from the market, making OPEC’s goal of rebalancing the oil market more achievable.
