May 5, 2022

WWW.ENERGYINTEL.COM

Opec-Plus: Oil Output Knocked Back Five Months

  • Crude oil production by Opec-plus dropped by 900,000 barrels per day in April, all the result of Russia's invasion of Ukraine.

  • Among the 19 countries with a quota, the output shortfall reached a staggering 2.7 million b/d, casting doubt over the alliance’s goal of managing global oil supply.

  • The alliance’s capacity is now estimated at 2.4 million b/d, which should slide to around 2.1 million b/d after May.

Between languishing producers reeling from years of underinvestment and an increasingly marginalized Russia, Opec-plus is risking its stature as a capable market manager.

The gap between the alliance’s ambition and potential was blown wide open in April. Yet leaders decided on May 5 to stay the course and not raise output, despite the acute decline in Russian output, ahead of what promises to be a fraught summer.

Granted, only two members — Saudi Arabia and United Arab Emirates — now wield any noteworthy spare capacity, but they are loath to rock the boat. The current price level suits the alliance just fine.

Created with Highcharts 9.0.0($/bbl)OPEC BASKET: WAR PREMIUM DIPS ON CHINA LOCKDOWNSMar'21Apr'21May'21Jun'21Jul'21Aug'21Sep'21Oct'21Nov'21Dec'21Jan'22Feb'22Mar'22Apr'22$60$70$80$90$100$110$120Source: Opec

Non-Opec Fiasco

Crude output by non-Opec alliance members Russia and Kazakhstan slumped by 1.05 million b/d in April. Russian output alone tanked by 890,000 b/d as clients balked at buying the products, forcing refiners to cut crude throughput in addition to already planned steep maintenance. With only shallow storage capacity, producers had to tighten taps, even though exports of crude remain buoyant. Kazakhstan, meanwhile, had to cope with ongoing repairs at the Caspian Pipeline Consortium’s terminal in the Black Sea, although these were reportedly completed by late April.

As a result, the nine non-Opec countries with a quota saw output drop nearly 1 million b/d month on month, or 1.7 million b/d short of their collective target. In compliance terms, this amounted to a record 313% (see table).

Among Opec members, Iraq surprised to the upside, raising production by 106,000 b/d compared to March. Half the monthly gain came from exports originating from Kirkuk via Turkey, an anomalous spike that is unlikely to persist.

Saudi Arabia lifted production by a mere 69,000 b/d, compared to its monthly growth allotment of 104,000 b/d, and the UAE's were up 40,000 b/d. All told, the 10 Opec countries with a quota raised output by 158,000 b/d to 24.3 million b/d. This was 1 million b/d below agreed production levels for the month.

Compliance With Opec-Plus Production Cuts
OpecBase ProductionApril CeilingApril ProductionOver/Under TargetCompliance With Cuts
Saudi Arabia11,00010,43610,404-32106%
Iraq4,6534,4144,363-51121%
UAE3,1683,0063,010498%
Kuwait2,8092,6652,664-1101%
Nigeria1,8291,7351,191-544682%
Angola1,5281,4501,147-303486%
Algeria1,0571,0021,009788%
Congo (Br.)325309231-78582%
Gabon18717719518NA
Eq. Guinea12712195-26524%
Opec 1026,68325,31524,309-1,006174%
Iran3,296NA2,550NANA
Venezuela1,171NA695NANA
Libya1,114NA949NANA
Opec 1332,26425,31528,503-1,006174%
Non-OpecBase ProductionApril CeilingApril ProductionOver/Under TargetCompliance With Cuts
Russia11,00010,4369,126-1,310332%
Mexico*1,7531,7531,737-16NA
Kazakhstan1,7091,6211,447-174298%
Oman8838388652740%
Azerbaijan718681555-126446%
Malaysia595565399-166652%
Bahrain205195200548%
South Sudan13012317956-710%
Brunei1029791-6205%
Sudan75718413NA
Non-Opec 915,41714,62712,946-1,681313%
Combined 19*42,10039,94237,255-2,687225%
Opec-Plus 2349,434NA43,186NANA

Meaningless Compliance

Among the Opec-plus 19, or those members with a quota, the output target for April was 39.94 million b/d. Actual output was 37.25 million b/d, or 2.7 million b/d less. Production thus returned to the level seen in November. In compliance terms, this amounted to a 225% rate, rendering the notion of targets as meaningless.

In May, the decline is expected to continue. Energy Intelligence’s forecast for the Opec-plus 19 shows crude production sinking to 36.8 million b/d, which would imply a shortfall of 3.6 million b/d and a compliance rate of 310%.

Still, the alliance is claiming that current supply levels are sufficient and the biggest risks are geopolitical and pandemic-related. Global markets, in other words, do not need more oil. However, an Opec Secretariat report ahead of the ministerial meeting kept oil demand growth in 2022 unchanged at 3.67 million b/d on the year. Such growth would require the alliance to step up production.

Others are less optimistic. JPMorgan, for instance, just slashed 2022 demand by 1 million b/d, citing shaky macroeconomic signals and rising fears of a recession.

Created with Highcharts 9.0.0OPEC-PLUS COMPLIANCE: NONSENSICAL TRENDOpecNon-OpecOpec-PlusMay'20Jun'20Jul'20Aug'20Sep'20Oct'20Nov'20Dec'20Jan'21Feb'21Mar'21Apr'21May'21Jun'21Jul'21Aug'21Sep'21Oct'21Nov'21Dec'21Jan'22Feb'22Mar'22Apr'2250%100%150%200%250%300%350%*Based on updated monthly assessments; Opec rate doesn't include Libya, Iran, Venezuela; non-Opec doesn't include Mexico. Source: Energy Intelligence

Capacity Steady

Currently Opec-plus adjusted spare capacity, or oil that could be brought to market within 30 days, is estimated at 2.4 million b/d. This is up slightly from a month ago given the temporary decline in Kazakh production, which in May should return to the high level posted in the winter.

Nearly 90% of Opec’s capacity — or about three-quarters of the alliance’s — rests with Saudi Arabia and the UAE. They now wield virtually all the power to move markets. Kuwait still possess a few months’ worth of taperings, while Algeria still maintains a trickle of additional capacity.

Russia now has 1.1 million b/d in potential capacity, which is defined as oil that could come to market quickly but is under external constraints, much like Iranian barrels.

Otherwise, apart from Kazakhstan, the non-Opec half of the alliance has a mere 80,000 b/d in adjusted spare capacity, roughly split evenly between Oman and Azerbaijan (see table).

Opec-Plus Spare Capacity, April 2022
('000 b/d)Crude CapacityApr'22Potential Spare*Adjusted Spare†
Opec
Saudi Arabia12,25010,4041,8461,096
Iran3,8002,5501,2500
Iraq4,3634,36300
Kuwait2,8292,664165165
UAE4,3003,0101,290690
Venezuela69569500
Nigeria1,1911,19100
Libya94994900
Algeria1,0601,0095151
Angola1,1471,14700
Congo (Brazzaville)23123100
Equatorial Guinea959500
Gabon19519500
Total Opec Spare33,10528,5034,6022,002
Non-Opec
Russia10,2009,0831,1170
Mexico1,7371,73700
Kazakhstan1,8001,467333333
Oman9008653535
Azerbaijan6005554545
Malaysia53039900
Bahrain20020000
South Sudan17917900
Brunei1009199
Sudan848400
Total Non-Opec Spare16,33014,6831,539422

Gary Peach, New York