OPEC Production Rises to Highest Level So Far This Year
“Despite strong compliance overall so far, OPEC’s efforts have not borne much fruit, as far as oil prices are concerned,” said Eklavya Gupte, senior editor, Europe and Africa Oil News at S&P Global Platts. “If global stocks do not start to show demonstrative signs of steady draws, OPEC may have to be more creative with its strategy.”
In addition, Gupte emphasizes that OPEC could face a brewing political crisis as two key members have broken diplomatic ties with Qatar. “In the past, the group has managed to put aside political rivalries to focus on production management, but geopolitical risk is always something that bears watching within OPEC.”
May 2017 production rose despite high compliance from both Saudi Arabia and Angola as Iraqi output increased steeply. Libya and Nigeria’s combined January-May average output of 2.312 MMbbld is now 101,000 bbld higher than their October levels, the benchmark month against which the rest of OPEC members’ cuts are determined. With production in these countries expected to continue to grow this summer as they recover from militancy-related outages, OPEC faces a tricky period in its attempt to accelerate market rebalancing. OPEC’s collective May output was some 350,000 bbld greater than its stated ceiling of 32.5 MMbbld, when Indonesia, which typically produces about 730,000 bbld, is added in. Among the 11 members with quotas under the production cut deal, compliance is 117%, according to S&P Global Platts.
On May 25, OPEC and 10 non-OPEC partners, including Russia, decided to roll over a 1.8-MMbbld production cut agreement into March 2018. This decision has, so far, proved unsuccessful in convincing a wary market that the producer group’s e effort to clear the glut of oil in storage is sincere. Meanwhile, prices remain stubbornly below $50/bbl.
Nigeria’s production in May rose to 1.73 MMbbld, up 80,000 bbld from April, the highest since March 2016 owing to the restart of Forcados crude exports. At least two tankers left the Forcados terminal in May, the first loadings since late October. Nigerian crude production is expected to rise even further in June, with Forcados loading schedules averaging 251,667 bbld, according to trading sources. Libyan production rose 180,000 bbld to 730,000 bbld in May as the giant Sharara field restarted production, and exports from both key eastern and western ports have risen at a steady pace with good demand shown by European and Asian refiners. Libyan oil output is now at its highest level since October 2014 when production averaged 860,000 bbld, the S&P Global Platts survey showed.
Iraq, which continues to produce above its output quota, saw its production rise 70,000 bbld to 4.43 MMbbld in May. Survey participants said the rise was caused by a slight increase in exports from the nation’s Persian Gulf terminals, along with a steady build in crude going into storage. The country’s compliance with its quota through the first five months of the deal stands at 70%, making it one of the least-compliant members, according to S&P Global Platts. At the same time, Iranian production rose on higher exports to 3.78 MMbbld, the survey found, just below its quota of 3.797 MMbbld.
OPEC’s largest producer, Saudi Arabia, saw its production fall to 9.93 MMbbld, down 40,000 bbld from April. Survey panelists said exports were lower despite a rise in direct crude burn. The kingdom has consistently cut more than its quota for five months in a row, the only country to do so. Saudi Arabia was allocated a quota of 10.058 MMbbld under the output curtailment agreement.
Saudi oil production was “below 10 MMbbld, well below” in May, energy minister Khalid al-Falih told S&P Global Platts. Recently, he also said the kingdom’s crude exports were likely to fall in June, especially to the U.S. He also has said the coalition will consider the need for deeper output cuts in July when the five-country monitoring committee meets in Russia.
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