Sunday 23, September 2018 by Bloomberg

OPEC+ over-compliance leaves room for Saudi oil-output boost

 

OPEC and its allies are pumping half a million barrels a day below the target they set just a few months ago, suggesting there’s room for Saudi Arabia to open the taps.

Whether or not it will do so is unclear.

The so-called OPEC+ group reached 129 per cent of its target in August, meaning it pumped less than it pledged in June, Russian Oil Minister Alexander Novak said before a meeting on Sunday in Algeria. Russia and Saudi Arabia are among the few producers able to ramp up supply, though any increase would cut the cushion of spare capacity, testing their ability to react to future disruptions.

OPEC+ officials gathered Saturday in Algiers to review output data before a meeting of the Joint Ministerial Monitoring Committee on Sunday, a group that includes the Saudi and Russian oil ministers and studies producers’ compliance. There’s so far been no discussion of any new proposal to boost output, delegates said, asking not to be identified because the information is private.

The Organization of Petroleum Exporting Countries and its partners agreed in June to achieve 100 per cent compliance with production quotas initially established in 2016. However, several producers have suffered disruptions, with last month’s over-compliance largely a result of sliding supply in Iran, Venezuela, Kazakhstan and Mexico, delegates said.

Following the June summit, Saudi Oil Minister Khalid Al-Falih suggested 1 million more barrels a day may flow to the market to temper rising prices. Russia seized on the opportunity, with recent data showing its production has jumped to a new post-Soviet record. Yet Saudi Arabia’s own output actually dropped in July amid signs it couldn’t ultimately find enough buyers.

Oil prices have climbed about 18 per cent this year, but divisions within OPEC are making it almost impossible to agree on collective action to cool the rally. Iran fears an output ramp-up by Saudi Arabia and Russia would steal the market share it’s losing to American sanctions, yet both nations are keen to contain prices amid pressure from the US.

“The OPEC monopoly must get prices down now!” President Donald Trump tweeted earlier this week.

“Saudi Arabia is uncomfortably squeezed,” said Bob McNally, founder of consultants Rapidan Energy Group in Washington, adding that the kingdom had “limited spare capacity” to compensate for the loss of Iranian supplies.

Non-OPEC partner Oman said Saturday it’s possible an increase in output may be suggested at Sunday’s meeting. There’s talk that OPEC+ must do more than what it agreed to in June, Oil Minister Mohammed Al Rumhy said in an interview, adding that discussions are most likely to focus on dividing up the output hike decided at that summit.

The 129 per cent compliance figure for August compares with 109 per cent for July, OPEC+ data show. It also contrasts with August production estimates from the International Energy Agency that suggest compliance closer to 100 per cent. In any event, the so-called JMMC has no mandate to decide on how supply increases will be shared out to reach targets, delegates said, adding that the decision will be taken at the next ministerial meeting in Vienna.

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