Production ticks up 88.5 MBOPD
OPEC released its Monthly Oil Market Report, outlining the state of the oil trade and the effects of the group’s output cuts. The group’s overall production increased by 88.5 MBOPD in September, but this was primarily due to just a few countries.
Libya and Nigeria, the only countries still exempt from the production cut agreement, have been taking advantage of this opportunity by increasing production as quickly as they can. These countries found success in this endeavor in September, with Libyan and Nigerian production rising by 53.9 MBOPD and 50.8 MBOPD, respectively.
Armed groups, budgets provide headwind in Libya
Libya produced an average of 923 MBOPD in September, but the actual volume produced on any given day was highly variable. For example, the Sharara field was forced to shut down from late September through October, as armed groups disrupted operations. This activity forced output to drop from about 1 MMBOPD to about 770 MBOPD. While negotiations allowed the field to restart in early October, armed groups are not the only problem for Libya.
According to Bloomberg, the Libyan budget is curtailing operations as well. Mustafa Sanalla, Chairman of the country’s NOC, reported that the company is only receiving about 25% of its investment budget. Production has dropped by up to 90 MBOPD in a single day because of insufficient funding for maintenance. This adds up, as the nation lost more than 6 million barrels of output between July and September to insufficient funding. Libya’s goal is sustaining output of 1.25 MMBOPD, but this will be difficult to achieve.
Nigeria facing pressure to cap production
Nigeria may be facing a different problem. After achieving relative stability in the oil-producing portion of the country, Nigeria is now producing 1,855 MBOPD. This is the highest level achieved by the country in over a year, and marks the second month that Nigeria has produced more than 1.8 MMBOPD.
This is significant, as previous statements from the country have indicated that it is willing to cap its production once levels stabilize above 1.8 MOBPD. It has not been brought into the fold yet, but if production continues to rise other OPEC members may step up the pressure.
Iraqi production now only 3% lower than December 2016
Other large changes in oil production were seen in Iraq and Venezuela. Iraqi production jumped by 31.6 MOBOPD to 4,494 MBOPD in September. Iraq has always had low cut compliance, and this increase does not help matters. September production actually exceeds average production in 2016, and is only 3% lower than production in December 2016.
Lower production from Venezuela increases overall compliance
Venezuela, on the other hand balanced out Iraq’s increased production and more. The South American country produced 1,890 MBOPD, 51.9 MBOPD less than it did in August. While this certainly helps the overall oil market, it does not proved much help to Venezuela, which is heading for dire straits.
PDVSA, Venezuela’s national oil company, has $3.5 billion in debt coming due in the next two months, with a very high probability of default. Continually falling production and currency reserves that have dwindled to less than $10 billion make these payments a significant uphill climb for the company.
While overall production from OPEC increased, the sharp drop in Venezuelan output means OPEC members subject to the output cut produced 16.2 MBOPD less in September than in August, increasing cut compliance.
Source: OPEC
