View Banners
Hide Banners


OPEC’s production profile has changed, complicating negotiations over oil cuts

OPEC and its allies have all but decided to cut oil production in 2019 to shore up what they see as a weak market ahead.

Now comes the hard part: negotiating how much to cut, how to allocate quotas, and what production level to set as the baseline for the cuts. Getting all 25 members of the OPEC/non-OPEC coalition — with their competing agendas, domestic considerations and geopolitical rivalries — will not be an easy task.

The group next meets December 6-7 in Vienna, and discussions have already begun on those particulars, delegates say, with talk that between 1 million and 1.4 million b/d may need to be slashed.

OPEC is a different organization than it was in late 2016, the last time it agreed to institute output cuts. Some members have boosted production, others have shrunk. The Republic of Congo has been added as a member, while Indonesia has left.

A new set of quotas will need to be hashed out to be reflective of current realities.

The current exemptions for Libya and Nigeria may be a place to start. Saudi energy minister Khalid al-Falih has suggested that they may be asked to join in the cuts this time.

Libya and Nigeria, both suffering from internal disruptions, were not given quotas when the coalition instituted 1.8 million b/d in cuts starting January 2017, while Iran was given a cap slightly above its production level at the time.

Production from Libya has risen 580,000 b/d from the October 2016 baseline on which the cuts were based, and Nigerian output has risen 120,000 b/d, according to OPEC data.

Iranian production, however, has fallen 390,000 b/d, mostly in the past few months, as customers cut back their purchases in advance of US sanctions that went into force November 5.

Falih met with Libya’s National Oil Corporation head Mustafa Sanalla on Thursday. The two discussed continuing OPEC’s cooperation with non-OPEC producers to maintain market stability and celebrated Libya’s return to “good production levels,” but did not say whether Sanalla was receptive to joining any output cuts, according to a report by the Saudi Press Agency.

Ministers have also said the October 2016 production baseline may be adjusted to a more recent output level.

Given that secondary source assessments of November production levels will not all be ready when the coalition meets, October looks to be the key month that may be considered for a baseline, according to OPEC sources.

As was the case two years ago, some countries have begun to grumble that the six independent secondary sources used by OPEC to monitor output — of which S&P Global Platts is one — are underestimating their actual level of production for the month, which would give them a lower baseline from which they would be expected to cut.

OPEC’s latest Monthly Oil Market Report found that the secondary sources pegged October output at an average of 32.90 million b/d.

That is below the October 2016 benchmark of 33.64 million b/d, when Indonesia’s membership suspension in December 2016, Equatorial Guinea’s reactivation of its membership in May 2017, and the Republic of Congo’s addition in June this year are factored in.

The changes are not evenly distributed, either.

OPEC kingpin Saudi Arabia’s production was 10.64 million b/d in October this year, according to OPEC figures, up 110,000 b/d from two years ago.

Other gainers beyond Libya and Nigeria include the UAE, which has ramped up its production by 150,000 b/d from October 2016, and Iraq, which has boosted its production by 90,000 b/d, according to the OPEC figures.

Meanwhile, crisis-stricken Venezuela’s production has plummeted 900,000 b/d since October 2016, in addition to Iran’s fall. Angola is down 160,000 b/d from its baseline and Kuwait has dropped 80,000 b/d, as well.

With the group identifying a potential market surplus of up to 1.4 million b/d in early 2019, OPEC will need its 10 non-OPEC partners led by Russia to participate in the cuts if it wants to balance the market.

Russia’s oil output surged to a record high of more than 11.4 million b/d in October, according to official data, and many Russian oil companies are eager to ramp up output, raising questions over how much they would be willing to cut.

Russian President Vladimir Putin on Thursday said it was “obvious we need to cooperate with Saudi Arabia” but did not commit to any cuts, adding that he was satisfied with the current oil price.

Russia does not require as high a price to balance its budget, with Saudi Arabia seen by some analysts as keen to defend a price around $80/b.

“As with all decisions impacting OPEC+, it will boil down to bilateral negotiations between Saudi Arabia and Russia, with the latter being viewed as the most significant obstacle to any future cooperation beyond the end of this year,” said Mohammad Darwazah, an analyst with Medley Global Advisors.
Source: Platts

Previous Next

Huge Opportunities For Investment in Maritime Sector: Nitin Gadkari

View More Videos

India Tanker Shipping & Trade Summit 2019

View All Albums