Estimates of OPEC+ production in September suggest that it is collectively about 3.6 million barrels per day below planned levels.
When the new targets come into effect on November 1, only eight countries will need to pump less crude oil. In addition to the three Gulf Arab neighbors, small reductions should also come from South Sudan, Algeria, Gabon, Iraq and Oman.
The total reduction required from them is only 890,000 barrels per day. That’s still a significant cut, but a long way from the headline.
However, don’t expect the cut to be even that much. You can forget about South Sudan, Gabon and probably even Iraq.
OPEC’s own data shows that South Sudan has not only exceeded its quota every month since the current deal went into effect in May 2020, but it has never cut a barrel of production. Would be surprised if it started now.
Gabon has shown a similar lack of determination. Output has been below the limit in just one month of the agreement’s 29-month history, OPEC data shows.
As for Iraq, the country’s oil minister wasted no time after Wednesday’s deal was finalized to assure oil buyers that the deal would not affect his country’s exports. With little room to adapt domestic use, that really means no reduction in production.
That narrows the list to five.
The required reductions from Algeria and Oman total 32,000 barrels per day; this is little more than a rounding error in the assessment of the group’s total output.
The cuts needed by Saudi Arabia and its neighbors amount to 790,000 barrels per day, but even that could be offset by increasing the production of some other members of the group.
Nigeria, Angola and Malaysia are all struggling with declining production capacity and have been pumping below their targets for months. That probably won’t change. Russia is also having a hard time. It struggled to keep up with the rising allocation before President Vladimir Putin ordered his troops into Ukraine, and the situation has only gotten worse in the months since the invasion.
But Kazakhstan is different. Production is below target at more than 560,000 barrels per day due to a combination of scheduled maintenance on one of the largest fields and a gas leak in another. The completion of the maintenance this weekend should allow the return of about 260,000 barrels per day. The rest will take longer, but the country’s energy minister says it should be back before the end of the month — just in time to offset the planned cut.
If he’s right, the effective production cut, measured from current production, could be reduced to just 230,000 barrels per day – hardly worth worrying about.
But a month later, the situation may look very different. The European Union’s sanctions on Russian crude oil exports will come into effect on December 5, the day after the producer group will hold its next meeting. The restrictions target most sea shipments to the bloc’s members, which have already fallen to about 660,000 barrels per day, from 1.6 million barrels in January.
Russia has successfully diverted much of the crude oil shunned by European buyers to India, Turkey and China; but the sanctions, which are also intended to limit shipments to non-European countries, could have a much greater impact. Russia’s own tanker fleet is not large enough to carry all the oil that would have to be shipped from Europe. That could force production restrictions. A proposal for a price cap for Russian crude would offer the Kremlin a way out — with an exemption from sanctions for cargoes sold at or below a price yet to be negotiated — but Moscow seems determined not to accept it.
If the Kremlin decides to halt production rather than accept a capped price, which seems likely, the OPEC+ cut of 2 million barrels per day could suddenly become very real.
One thing is certain, crude oil will be on a roller coaster for the rest of 2022.
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Julian Lee is an oil strategist for Bloomberg First Word. He was previously a senior analyst at the Center for Global Energy Studies.
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