Opec-Plus’ November Cut Less Spectacular Than Intended

Crude oil output by Opec-plus members participating in a production cut deal fell by 300,000 b/d in November to 38.13 million b/d, according to Energy Intelligence’s assessment, a significantly smaller decline than the market had anticipated.

A hefty increase by four countries — Angola, Kazakhstan, Russia and Nigeria — offset a potential 1 million b/d reduction that many observers had been expecting in line with the alliance’s agreement in October to slash output.

Since these four countries have been producing far less than their quota, their additional barrels fall within the deal’s parameters.

The smaller-than-expected Opec-plus cut has helped to keep global markets supplied and fed into the bearish sentiment sweeping oil futures, where leading benchmarks are in contango, a price structure generally that encourages oil storage since there is a glut of product.

Two months ago, the 19 countries in Opec-plus that produce on a quota basis decided to reduce output by 2 million b/d. However, the thinking at the time was that only half of this would consist of physical barrels, while the other half would simply lower targets for countries like Russia and Nigeria that have reached capacity limits.

Tellingly, Opec’s four stalwarts — Saudi Arabia, Iraq, United Arab Emirates and Kuwait — together reduced output by 920,000 b/d on the month, indicating the anticipated 1 million b/d cut was feasible.

However, the group’s two laggards — Nigeria and Angola — together raised production by 350,000 b/d compared with October, while Kazakhstan and Russia, both non-Opec countries, managed a joint 320,000 b/d increase.

All told, this 670,000 b/d gain greatly diminished the effect of the monthly cut by Mideast producers. It also alleviated any perception of tightness in global supplies at the start of winter.

Shortfall Curtailed

As predicted, the downward adjustment to targets had a significant impact on Opec-plus’ monthly production shortfall.

In the past six months, the alliance had come up short of its monthly target by an average 3.3 million b/d — the result of massive underproduction by countries that had run up against a capacity wall.

In November, however, the size of the shortfall fell to 2 million b/d, which still points to discrepancies in volume allocation among the participating countries.

Said differently, if Opec-plus were in theory to meet its official target, oil production would soar by 2 million b/d.

The largest shortfall belongs to Nigeria, whose November output was 730,000 b/d short of target, while in second place was Russia, which produced 670,000 b/d less than its quota. Third was Angola (250,000 b/d short), and fourth was Malaysia (190,000 b/d short).

December Outlook

Production could conceivably grow in December, when the November quotas will remain in place.

Assuming the big Mideast producers hold output steady, more barrels could emerge from Kazakhstan, which will want to compensate for three months of underproduction, and West Africa, where producers like Nigeria and Angola are generally unreliable but have been known to surprise to the upside.

Including the four members without a quota — Iran, Mexico, Libya and Venezuela — Opec-plus’ crude production last month fell by 220,000 b/d to 44.28 million b/d.