Outlook For OPEC's Next Meeting

The next OPEC meetings are scheduled for early December. At issue is how they will deal with the outlook for the reduced demand for OPEC oil in 2020.

OPEC
Source: OPEC

According to Bloomberg:

“The OPEC+ group of oil producers will need to make deeper output cuts when they meet in December. That’s the inescapable conclusion from the latest round of monthly reports published by the three big oil-forecasting agencies.”

OPEC

According to Reuters reporting, “Saudi Arabia, OPEC’s de facto leader, wants to focus first on boosting adherence to the group’s production-reduction pact with Russia and other non-members, an alliance known as OPEC+, before committing to more cuts, the sources said…A second OPEC source said: “Of course deeper cuts are an option, but some things should happen before that. The rest of the OPEC+ countries will not cut deeply if Iraq and Nigeria don’t comply 100%.”

Supply Adjustments

OPEC released a table in January showing the “Voluntary Adjustment” to “Reference Production,” which result in the “Voluntary Production Level” for the OPEC and non-OPEC participants. Libya, Iran, and Venezuela were exempted.

OPEC

As shown above, OPEC production “quotas” for the other OPEC members totaled 25.937 million barrels per day. For August 2019, prior to the attack on Saudi facilities in September, OPEC production totaled 29.8 million barrels per day.

OPEC

Using the 25.937 million as a base, and adding actual September production of 2.159 for Iran, 1.164 for Libya, and .644 for Venezuela gives a total of 28.894. Demand for OPEC oil is projected (by OPEC) to be 29.6 in 2020, so it requires an additional cut of .294 million barrels per day.

Saudi Arabia has been willing to cut that much below its target. So the key for them is getting the biggest over-producers to comply, which is Nigeria, Iraq, and Russia.

Nigeria

Nigeria will make cuts to its crude oil output to comply with OPEC output targets, Mele Kolo Kyari of the Nigerian National Petroleum Company (NNPC) said.

According to OPEC’s numbers, Nigeria had pumped 1.859 in September, 175,000 b/d beyond its quota.

However, there may be a bigger problem brewing for the future. Kyari said that Nigeria hoped to raise oil production to about 3 million bpd in the next 2 to 3 years.

Iraq

Iraq will be fully compliant by October with agreed oil output cuts under an OPEC-led supply deal, and Baghdad’s reduction will amount to 175,000 barrels per day (bpd), Oil Minister Thamer Ghadhban said.

Iraq produced 4.724 in September. Its quota is 4.512. So the difference is actually a little more than 200,000 b/d.

Russia

According to numbers reported by the Joint Organizations Data Initiative (JODI), Russian production in August was only 86,000 b/d lower than last October, the reference month. The country had promised to cut its output by 230,000 b/d.

Russian oil production

Conclusions

Thanks to the effects of sanctions on Iran and Venezuela, OPEC’s production cuts are far greater than had been planned. And so the task of lowering production to meet demand in 2020 is doable, assuming those overproducing actually do comply, and Saudi Arabia is willing to keep underproducing.

However, the opposite side of the coin is the risk that U.S. sanctions on Iran will be lifted prior to the U.S. presidential election next year. If they are, OPEC will have upwards of another 1.7 million barrels to cut to make room for Iran, and that would be very challenging, at best.

Check back to see my next post!

Best,
Robert Boslego
INO.com Contributor - Energies

Disclosure: This contributor does not own any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.

Iraq Only Pays Lip Service To OPEC Agreements

Iraq is OPEC’s second-largest producer, and its production in August was 4.88 million barrels per day, according to Platts, and 4.76 according to Reuters. Its production target is 4.512, and so it is producing around 220,000 b/d more than it had pledged.

OPEC
Source: Reuters

By contrast, Iran’s production has fallen by 1.6 million per day since the October 2016 base period, and Saudi Arabia cut its output by 920,000 b/d. Moreover, according to Majid Jafar, CEO of Crescent Petroleum, the largest private oil company in the region, it is “doubling down” on its investment in Iraq and intends to increase its production there. Continue reading "Iraq Only Pays Lip Service To OPEC Agreements"

OPEC's Unplanned Outages Supported Oil Prices

In early July, OPEC+ rolled-over its December 2018 agreement for another nine months ending March 2020. To get an idea of compliance with that agreement to-date, I compared changes in production from October 2018 (the base period) and June 2019, except for Russia, May 2019 due to a lack of data for June.

I found that OPEC delivered a cut of 2.46 million barrels per day, of 8%. That is more than three times its pledge of 800,000 b/d. The primary reason for such a large cut was sanctions on Iran and Venezuela.

Iran reduced its reported output by 1.3 million barrels per day or 38%. Venezuela reduced its output by 600,000 b/d, or 46%. It’s important to understand that both of those cuts were involuntary.

The largest voluntary cut was by Saudi Arabia, 620,000 b/d, or 8%. Saudi Aramco (ARMCO) lifted its production by 200,000 b/d in June from May to 10.1 million barrels per day.

OPEC

Note: Russia’s change is until May 2019. Continue reading "OPEC's Unplanned Outages Supported Oil Prices"