Compliance to Opec oil cut deal rose in December

08 January 2018
Adherence to the pact increased to 128 per cent from 125 per cent the previous month

The Organization of Petroleum Exporting Countries (Opec) has reported a higher rate of compliance to the output reduction deal it reached with its members and a group of 11 non-Opec oil producing countries.

Adherence to the pact in December, renewed by the parties on 30 November last year, rose to 128 per cent from 125 per cent in November, a Reuters survey found. For the first time since the deal took effect in January 2017, the UAE produced less oil than required by the agreed quota.

Additional supply curbs from Gulf producers and a decline in output from Venezuela all further contributed to the rise in compliance.

The Opec bloc is reducing output by about 1.2 million barrels a day (b/d) as part of the agreement, with Russia and the 10 other non-Opec producers, which will run until the end of 2018. The concerted effort from the oil exporting states to reduce address the global oversupply situation in a bid to boost crude prices has so far produced the desired results.

Contrary to early concerns about the initiative’s success, high adherence to the deal by producers from both sides, has propped up oil prices to reasonable levels, with the global benchmark Brent crude consistently trading at above $65 a barrel since the beginning of 2018.

The Reuters survey shows no sign of producers boosting output to cash in on higher prices or to replace the decline in Venezuela, where output is dropping amid an economic crisis.

Production in Venezuela, where the oil industry is starved of funds due to domestic economic problems, has fallen further below its minimum Opec target, the survey found. Both exports and refinery operations were lower in December.

Top exporter Saudi Arabia trimmed output by 60,000 b/d, according to sources in the survey who cited stable to lower exports and lower refinery processing, putting supply further below the kingdom’s Opec target.

The UAE, which is set to assume the rotating presidency of Opec, has cut production further and delivered its highest adherence yet, according to Reuters. Abu Dhabi displayed slower compliance for most of 2017, compared to its peers like Saudi Arabia.

Libyan oil output slipped by 30,000 b/d, hampered by damage to a pipeline in a suspected attack and other outages.

Among countries which recorded an increase in output, the biggest rise came from Nigeria. Exports from the West African country had been due to reach a 21-month high in December, although actual shipments fell just short of that level, according to the Reuters survey.

The second-largest production increase was recorded in Iraq. A boost in exports from the south of the country, the outlet for most of its crude oil, to a record 3.55 million b/d in December, offset relatively low shipments from the north. Output in northern Iraq is still down after falling in mid-October when Iraqi forces retook control of oilfields from Kurdish fighters who had been there since 2014.

Algerian output rose after a reduced impact on production levels from planned oilfield maintenance operations.

In late 2016, Opec announced a production target of 32.50 million b/d. The target included Indonesia, which has since left Opec, and does not include Equatorial Guinea, the latest country to join. According to the survey, output in December has averaged 32.28 million b/d, about 530,000 bpd above the target adjusted to remove Indonesia and not including Equatorial Guinea.

With Equatorial Guinea, production in December totalled 32.41 million b/d, up 20,000 b/d from November. The November total was revised down by 90,000 b/d to the lowest since April 2017, according to the Reuters survey.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.