September 8, 2022

WWW.ENERGYINTEL.COM

Opec-Plus Compliance Flies on Artificially High Target

  • Opec-plus members under quota only managed to raise crude oil output in August by 163,000 b/d, or 485,000 b/d less than the agreed increase for the month.
  • Total output by Opec-plus 19 last month was 38.8 million b/d, which is a 3.3 million b/d short of the group’s target. Compliance, as a result, reached an astronomical level.
  • Non-Opec output was flat thanks to a joint monthly decline of 100,000 b/d by Russia and Kazakhstan.

A combination of Opec-plus' overly ambitious growth targets for the summer and members’ inability to meet production targets resulted in a historically high output shortfall of 3.3 million b/d in August. Russia accounted for 1.2 million b/d, or over a third, of the shortfall, after its crude oil output dipped by 50,000 b/d last month to 9.76 million b/d.

However, it is crucial to note that Russia’s output ceiling in August was 800,000 b/d higher than production capacity, according to Energy Intelligence’s assessment of the country’s upstream. This effectively makes the alliance’s August target of 42.1 million b/d artificially high by at least 800,000 b/d if Russia’s constraints are factored.

Opec-plus agreed to raise the production target by 100,000 b/d in September, though the October target will revert back to August — a move that observers called “symbolic” but shows the alliance intends to respond tactically to market dynamics on a month-by-month basis. The three-month decline in the Opec basket price is certain to prod alliance leaders to take decision limiting supply.

Created with Highcharts 9.0.0($/bbl)OPEC BASKET - H2'22 STARTS WITH STEEP SLIDEMar'21Apr'21May'21Jun'21Jul'21Aug'21Sep'21Oct'21Nov'21Dec'21Jan'22Feb'22Mar'22Apr'22May'22Jun'22Jul'22Aug'22Sep'22$60$70$80$90$100$110$120Source: Opec

Opec Shows Muscle

All the additional barrels produced by Opec-plus in August, including the four members without a quota, came from core Opec countries.

Opec, in fact, raised production by 552,000 b/d to 29.9 million b/d. To be sure, the bulk of these gains, or 70%, came from the three Opec members without a quota. Libya surged production by a 358,000 b/d to 1.2 million b/d, which is generally believed to be current capacity. Iran and Venezuela managed small monthly increases.

As far as countries with quotas, Saudi Arabia, as usual, kept in step with its larger allotments: the kingdom raised crude production by 114,000 b/d to 10.94 million b/d. Iraq, which benefited from livelier-than-expected domestic demand, boosted output by 71,000 b/d to 4.48 million b/d, our assessment shows. United Arab Emirates and Kuwait also lifted production.

All told, the 10 members with quotas produced 169,000 b/d more in August to reach a total 25.3 million b/d. This was 1.3 million b/d below the required production for August. The resulting compliance rate was 223% for the group – the highest ever.

Created with Highcharts 9.0.0OPEC-PLUS COMPLIANCE SKYROCKETS IN AUGUST*OpecNon-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'22Jul'22Aug'2280%120%160%200%240%280%320%360%400%440%480%

*compliance rate based on updated monthly assessments; Opec rate does not include Libya, Iran, Venezuela; non-Opec does not include Mexico.
Source: Energy Intelligence


Non-Opec Stumbles

The three producers from the former Soviet Union — Russia, Kazakhstan, and Azerbaijan — accounted for a total monthly decline of 110,000 b/d.

Many of Russian companies are producing near capacity and have little room to grow. But due to the pullout of US major Exxon Mobil from the Sakhalin production sharing agreement, crude output there has fallen from some 200,000 b/d at the start of the year to just 5,000 b/d in August. This largely explains why Russia has failed to reach the 10 million b/d milestone.

The country’s required production in August, or 11 million b/d, is not only beyond capacity but is about 400,000 b/d more than the all-time high of 10.6 million b/d in October 2018. The pandemic, however, forced companies to shut unprofitable wells, as a result of which current capacity is assessed at 10.2 million b/d.

Kazakhstan is struggling with technical glitches at Kashagan, its second most prolific field, and export constraints in the Caspian Pipeline Consortium that depends on a port in Russia’s Black Sea. The Central Asian country’s production was estimated at 1.37 million b/d last month, down 53,000 b/d month-on-month. September does not bode well, as reports indicate that Kashagan production will be kept at around a third of 350,000 b/d capacity.

Azerbaijan is struggling with accelerating decline rates, particularly at the Azeri-Chirag-Guneshli field, and missed its August target by 163,000 b/d.

In sum, the non-Opec 9 missed their target by 1.9 million b/d, giving them a meaningless compliance rate of 482%. The overall alliance rate for the month was 303%, beating the previous record by nearly 80 percentage points.

Created with Highcharts 9.0.0('000 bbl)ALLIANCE OUTPUT SHORTFALL SOARS IN AUGUSTSepOctNovDecJanFebMarAprMayJunJulAug05001,0001,5002,0002,5003,0003,500Source: Energy Intelligence
Compliance With Opec-Plus Production Cuts
OpecBase ProductionAugust CeilingAugust ProductionOver/Under TargetCompliance With Cuts
Saudi Arabia11,50011,00410,944-60112%
Iraq4,8034,6514,480-171213%
UAE3,5003,1793,184598%
Kuwait2,9592,8112,8110100%
Nigeria1,8291,8261,056-77025767%
Angola1,5281,5251,219-30610300%
Algeria1,0571,0551,0638NA
Congo (Br.)325325254-717100%
Gabon18718622943NA
Eq. Guinea12712765-626200%
Opec 1027,81526,68925,305-1,384223%
Iran3,296NA2,620NANA
Venezuela1,171NA745NANA
Libya1,114NA1,208NANA
Opec 1333,39626,68929,878-1,384223%
Non-OpecBase ProductionAugust CeilingAugust ProductionOver/Under TargetCompliance With Cuts
Russia11,50011,0049,763-1,241350%
Mexico*1,7531,7531,7160NA
Kazakhstan1,7091,7061,368-33811370%
Oman88388189312NA
Azerbaijan718717554-16316400%
Malaysia595594374-22022070%
Bahrain2052052105NA
South Sudan13013016737NA
Brunei10210286-161606%
Sudan7575783NA
Non-Opec 915,91715,41413,493-1,921482%
Combined 19*43,73242,10138,798-3,305303%
Opec-Plus 2351,066NA45,087NANA

Gary Peach, New York