Saudi output is up 85.5 MBOPD

OPEC released this month’s Monthly Oil Market Report, outlining the cartel’s assessment of the state of the international oil industry.

The cartel’s production increased in May, with many countries reporting large changes in output. In total OPEC produced 3,1869 MBOPD in May up 35.4 MBOPD from April levels.

Like last month, Saudi Arabia showed the largest increase in production this month, with output rising by 85.5 MBOPD in May.

The kingdom produced just under 10 MMBOPD and above its average in Q4 2017 and Q1 2018. Reports suggest Saudi Arabia continued this production increase in recent weeks, producing above 10 MMBOPD for the first time since October. This in itself is not unusual, as the country typically ramps up production in the summer to meet seasonal demand.

However, Saudi officials are reportedly considering boosting output by another 100 MBOPD, which would push the country above the level it has committed to in the cut agreement. Major increases were also seen in Algeria, Iraq and Angola, which added a combined 80.7 MBOPD.

Nigeria, Venezuela and Libya production down 120 MBOPD

These increases were partially offset by sharp declines among the most unstable OPEC members, Libya, Nigeria and Venezuela. Of these Nigeria reported the largest output drop, with production falling by 53.5 MBOPD. The country continues to suffer from major instability, with militant attacks still disrupting activities. In addition, Shell, which produces a third of the country’s oil, recently declared force majeure on shipments of one grade of crude after finding leaks in a major pipeline.

The Venezuelan decline also continued, with the country producing 1,392 MBOPD in May, down 42.5 MBOPD in the month. Production in the South American country has fallen by an average of 51 MBOPD each month this year. At this rate, Venezuelan production would reach zero in only two years.

Fate of the cuts will be decided this month

While overall production increased moderately, cut compliance fell significantly this month as Libya and Nigeria are not subject to the agreement. Countries subject to the cut added a combined 107.6 MBOPD, continuing the increase seen last month.

The cut is currently on shaky ground, and many analysts expect it will be revised in OPEC’s meeting this month. With the current global inventory roughly at the five-year average, the cuts have accomplished their original goal, at least in theory.

The continued collapse in Venezuela has meant the country is producing well below the level it agreed to, bringing the overall group’s output down. Furthermore, potential sanctions on Iran may force that country to cut production, throwing the market out of balance. Russia, which is not in OPEC but did agree to cut output, also is pushing for an increase in production.

Considering these factors, the question is how much the group plans to boost output, not if it will.

There is little consensus on how much will be added. The Wall Street Journal, for example, recently reported that Saudi Arabia and several other members favor adding around 350 MBOPD, but Russia has proposed increasing production by as much as 800 MBOPD.

On the other hand, some OPEC members are not convinced a production boost is needed at all. Iraq’s oil minister, Jabar al-Luaibi, recently issued a statement that opposed easing the cuts. Luaivi said producers “should not over-exaggerate the need of the oil market for more oil supplies for the time being, which could cause big harm to the global markets. This could be misinterpreted by speculators and consumers, leading to a significant fall in oil prices, and this is unacceptable to us.”

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