Market Overview

5 December 2019

OPEC+ output cuts could remain ink on paper

OPEC+ decision on further cuts could be partially shrugged off by some members. As OPEC+ members gathered in Vienna on Thursday to discuss possible further cuts of crude output by additional 400,000 bpd latest OPEC analysis showed a large oversupply and build-up in inventories in the first half of 2020.

Saudi Arabia and Venezuela proposed even deeper additional cuts by 500,000 bpd to 1.2 mb/d according to the agreement to be running by end of March 2020 with a strict condition of “total compliance”.

Some countries within OPEC+ are still failing to meet compliance with pledged production cut. Nigeria and Iraq produce well above their quotas. Crude production in Iraq in October 2019 was 26% above baseline, Nigeria was meeting pledged cuts only by 30%, United Arab Emirates performed only 65% of the agreed cuts, Russia – 80%.

Although, overall cuts performance by OPEC+ in October was 141-142% or 1,7 mb/d compared to October 2018 baseline. Saudi Arabia, Angola, Azerbaijan, Bahrain, Brunei were contributing the most to lower production.

Russia, a key non-OPEC producer underperformed pledged cuts in November by roughly 33,000 bpd. Russia’s Energy Minister Alexander Novak said the country almost 100% of compliance with pledged cuts if gas condensate production would not be considered. Russia is producing roughly 700,000 bpd of gas condensate and claimed it should be excluded from country’s quota in OPEC+ deal. Other members of the agreement are not considering gas condensate production as part of their pledge. It is likely Russia will be granted such an exclusion after April 2020. Novak said actual output cuts by Russia were 195,000 bpd this November vs 228,000 pledged. Further cuts by 200,000-228,000 bpd are expected in December 2019.

Most of the OPEC+ members vowed to support extension of the deal by end of 2020, even though some like Angola plan to raise oil production in 2020 (still below the target). 

Saudi Arabia, an OPEC cartel leader, bears the most of the cuts with production in November by 783,000 bpd less that preset October 2018 baseline and far more less than pledged 322,000 bpd. Ahead of the meeting Saudi Prince Abdulaziz bin Salman claimed Saudis are no longer willing to compensate for other members’ non-compliance and threatened with oil-output surge. Russia’s Novak said on Thursday every OPEC+ member “need to evenly spread the load of our commitments”.

Meanwhile, Saudi Aramco has priced its IPO at 32 Riyals per share ($8.53), Reuters reports. Aramco proposed a 30-32 Riyals range November 17 just before the star of a roadshow. Institutional investors claimed some $50 billion interest in IPO, retail investors – $12.6 billion.

WTI rallied to almost $59 a barrel on Thursday, a record since September, 23. Brent crude futures surged to $64.38 in mid of European trading session.


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