July 8, 2022

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Opec-Plus Claws Back With June Output Surge

  • Crude oil production by Opec-plus grew 610,000 b/d in June to 43.69 million b/d, according to Energy Intelligence’s assessment, marking the largest monthly increase since September 2021.

  • Non-Opec Russia spearheaded the surge with a 540,000 b/d gain for the month, while Opec leaders Saudi Arabia and Iraq each added 100,000 b/d.

  • Despite the jump in output, the 19 members of the alliance with quotas came up 2.77 million b/d short of required production of 40.8 million b/d for June.

June was a month of recovery for Opec-plus. Output jumped beyond what was previously thought possible thanks to a resurgence in Russian activity, while Iraq showed that it still has potential for upside regardless of infrastructure constraints.

With only two months left to the Covid-19 pandemic agreement reached in 2020, more focus will shift to spare capacity and how Saudi Arabia and the United Arab Emirates, ostensibly free from current output constraints, choose to wield it in a market that remains tight on supply.

Shortfall Remains Large

At 43.69 million b/d, June output is rebounding from the April plunge but remains 340,000 b/d short of the post-pandemic high posted in March.

Kazakhstan prevented a strong month from being great. If the massive offshore Kashagan field hadn’t gone into maintenance, then the monthly production gain for Opec-plus would have approached 1 million b/d, or a two-year high, while overall output could have reached its highest level since April 2020.

The Opec-plus 19 remains far behind its schedule of required production. The group of producers with quotas cranked out 38.04 million b/d last month, an impressive 600,000 b/d gain on the month, but the volume remains nearly 2.8 million b/d behind the June target of 40.8 million b/d.

Created with Highcharts 9.0.0('000 b/d)ALLIANCE OUTPUT SHORTFALL STEADIES IN JUNESep'21Oct'21Nov'21Dec'21Jan'22Feb'22Mar'22Apr'22May'22Jun'2205001,0001,5002,0002,5003,0003,500Source: Energy IntelligenceDec'21 000 bbl: 896

Russian Rebound

Led by state-controlled Rosneft, Russia lifted crude production to 9.78 million b/d, just 285,000 b/d short of the two-year high posted in February. Output was nearly 900,000 b/d short of the June target, or one-third of the entire shortfall of the Opec-plus 19. Energy Intelligence believes that Russian production will plateau at this level before beginning to fall later in the year.

Saudi Arabia, the world’s second-largest producer after the US, raised production in June by 104,000 b/d to 10.62 million b/d, while Iraq, to the surprise of many, overcame nagging bottlenecks and hiked output by 103,000 b/d to 4.41 million b/d, according to our assessment.

West African leaders Nigeria and Angola continue to wallow in despair, unable to muster a change in the downward trajectory. Angola, in fact, seems to have surpassed Nigeria in output for June, although there is a 300,000 b/d difference in the two countries’ baselines (Nigeria being the larger). Together these two comprised another one-third, or 900,000 b/d, of Opec-plus’ 19 deficit in targeted production.

As a result, compliance among Opec producers with a quota was 157%, while non-Opec posted a compliance rate of 270%. The alliance’s overall compliance was 195%, the second-highest since May 2020.

Created with Highcharts 9.0.0OPEC-PLUS COMPLIANCE: KAZAKHSTAN IN SUMMER FOCUSOpecNon-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'22May'22Jun'2250%100%150%200%250%300%350%NOTE: Compliance rate based on updated monthly assessments; Opec rate does not include Libya, Iran, Venezuela; non-Opec does not include Mexico. Source: Energy Intelligence

Strong Finish In Doubt

Kazakhstan will remain in focus in July-August, the last two months of the production curb deal that went into effect in May 2020. If Russia presses ahead with restrictions at the Novorossiysk terminal that exports volumes pumped by the Caspian Pipeline Consortium, Kazakhstan output will not only fail to return to previous levels but actually decline. Astana can reroute some volumes, but not the entire 1 million b/d handled by CPC.

In a worse case scenario that Kazakhstan struggles to reroute barrels, Opec-plus production could tumble in the next two months.

Overall, these two non-Opec trends — seesawing Russian output and potential restrictions on Kazakh barrels — could help determine how Riyadh and Abu Dhabi plan to wield their spare capacity in the months ahead. These two producers wield 2.55 million b/d in spare capacity, or 95% of Opec’s spare, according to an updated assessment by Energy Intelligence.

Compliance With Opec-Plus Production Cuts
OpecBase ProductionJune CeilingJune ProductionOver/Under TargetCompliance With Cuts
Saudi Arabia11,50010,66310,623-40105%
Iraq4,8034,5094,408-101134
UAE3,5003,0753,080599
Kuwait2,9592,7242,7240100
Nigeria1,8291,7721,168-6041160
Angola1,5281,4801,171-309744
Algeria1,0571,0231,0371459
Congo (Br.)325315256-59690
Gabon18718119514NA
Eq. Guinea12712388-35975
Opec 1027,81525,86424,750-1,114157
Iran3,296NA2,600NANA
Venezuela1,171NA720NANA
Libya1,114NA626NANA
Opec 1333,39625,86428,696-1,114157
Non-OpecBase ProductionJune CeilingJune ProductionOver/Under TargetCompliance With Cuts
Russia11,50010,6639,779-884206
Mexico*1,7531,7531,708-45NA
Kazakhstan1,7091,6551,235-420878
Oman883855856196
Azerbaijan718696564-132700
Malaysia595577383-1941,178
Bahrain205199197-2133
South Sudan130126122-4200
Brunei1029970-291,067
Sudan7573807NA
Non-Opec 915,91714,94313,286-1,657270
Combined 19*43,73240,80738,036-2,771195
Opec-Plus 2351,066NA43,690NANA

Gary Peach, New York