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OPEC has much cutting to do after April crude output surge: Platts survey

OPEC turned up the taps in April, adding more glut to a reeling oil market, and now needs to greatly throttle back its crude production to comply with a global deal aimed at bolstering prices against the coronavirus crisis.

OPEC’s battle for market share last month pushed the 13-country bloc’s output to 30.79 million b/d, an increase of 1.82 million b/d from March and the most since February 2019, according to the latest S&P Global Platts survey.

Freed from quotas that had been in place for more than three years, core Gulf OPEC members Saudi Arabia, the UAE and Kuwait hit record highs in crude production, more than offsetting losses by Iraq, Angola and Iran, the survey found.

But with the OPEC+ coalition of OPEC, Russia and nine other allies agreeing to implement the biggest coordinated production cut in the market’s history starting in May, members will have to tighten up their discipline.

The deal, which exempts Iran, Venezuela and Libya, commits the other 10 OPEC countries to a collective ceiling of 20.60 million b/d for this month and next. That will require those 10 members to slash their output by 7.47 million b/d — about a quarter of their April production, according to Platts calculations.

Russia and the other non-OPEC partners in the coalition will add further cuts.

The alliance is hoping its voluntary curbs, along with sizable financially forced shut-ins in the US, Canada and other major producing countries, will help speed the market’s recovery from the coronavirus pandemic, which has gutted global oil demand.

Crude prices have rebounded in recent weeks after hitting historic lows last month but remain far below the budgetary needs of OPEC’s oil-dependent economies.

OPEC+ ministers are scheduled to meet again June 10 via webinar to assess the market, review quota compliance and decide on next steps. As written, the deal’s prescribed cuts will ease in the second half of 2020, and again in 2021 before expiring in April 2022.
Flood from the Gulf

Analysts are expecting Saudi Arabia and its Gulf allies the UAE and Kuwait to lead by example and make good on their production quotas, as they have in the past three-plus years of OPEC+ supply accords, despite their April output surges.

OPEC kingpin Saudi Arabia, which had pledged to max out its production capacity of more than 12 million b/d to demonstrate its market strength, averaged a record-high 11.70 million b/d for the month, according to the Platts survey.

The kingdom appeared to dial back its output in the back half of April as prices crashed and it struggled to find buyers for its crude, market sources said. Its quota under the new deal is 8.49 million b/d, a level it hasn’t produced below since January 2011, except for a month in September 2019 after a missile attack on its critical Abqaiq crude processing facility, according to survey archives.

The UAE pumped an unprecedented 3.84 million b/d, its exports rising even with the return of its Ruwais refinery from maintenance, the survey found. It will have to rein in its production to 2.45 million b/d to comply with its new cap.

Kuwait hit a record 3.15 million b/d, boosted by the return of production from the Neutral Zone it shares with Saudi Arabia and increased output from its northern heavy oil fields, according to the survey. Its new quota is 2.17 million b/d.

The Gulf countries were the only three OPEC members to gain production in the month.
Iraqi compliance challenge

Iraq, OPEC’s second largest producer, took the biggest hit, losing 110,000 b/d as low fuel demand and a lack of product storage space forced its refineries to severely lower crude runs.

At 4.54 million b/d in April, Iraq’s production will have to fall by almost 1 million b/d for the country to abide by its quota under the OPEC+ deal. The politically splintered nation has been a consistent laggard in compliance, drawing the ire of other members, and the government faces challenging negotiations with international oil companies and the semi-autonomous Kurdish region to fulfill its cut commitment.

Angola also saw a significant fall to 1.33 million b/d, having revised down its May loading program on lack of buying interest, according to the survey. It still needs to cut another 150,000 b/d to meet its quota.

Iran, Venezuela and Libya — all exempt from the deal due to disruptions to their oil industries — continue to limp along.

Iran, under stiff US sanctions, fell to a 32-year low of 2.02 million b/d, the survey found, as key customer China reduced its purchases, while Venezuela, also hit by US sanctions, shrunk to 620,000 b/d.

Libya, with opposition rebels blockading key ports, pumped just 80,000 b/d, its lowest since the depths of its civil war in 2011, according to the survey.

The Platts OPEC figures are compiled by surveying OPEC and oil industry officials, traders and analysts, as well as reviewing proprietary shipping, satellite and inventories data.

NOTES:

• On April 12, OPEC and its allies agreed on a supply accord calling for 9.7 million b/d in production cuts for May and June, 7.7 million b/d for the second half of 2020, and 5.8 million b/d from 2021 through April 2022. The cuts are determined from an October 2018 baseline production level, except for Saudi Arabia and non-OPEC Russia, who were given baselines of 11 million b/d.
• The OPEC+ coalition will next meet June 10 via webinar.
• Ecuador exited the group effective January 1.
• S&P Global Platts OPEC survey, which has been published since 1988, measures wellhead crude oil production in each member country
Source: Platts

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