December 8, 2022

WWW.ENERGYINTEL.COM

Opec-Plus: Year-End Cut Reduces Shortfall Discrepancy


  • Opec-plus’ output among the 19 members with a voluntary quota declined 300,000 b/d in November to 38.13 million b/d.
  • Significant production gains by Angola and Kazakhstan prevented an even larger monthly decrease.
  • Alliance output was 2 million b/d short of target for the month, a notable improvement on the 3 million+ b/d shortfall seen in the past half-year.

November crude production by the 19 Opec-plus members with a quota was just 300,000 barrels per day lower than October — not the 2 million b/d controversial cut that took effect in November and will continue this month and into 2023. And the decline was also not the market interpretation of a 1 million b/d cut in physical barrels and a 1 million b/d in an “accounting” correction.

It did, however, correct about a third of the group's paper imbalance, or shortfall.

Essentially, in previous months the Opec-plus targets were so unrealistic given many producers’ capacity restraints that those barrels would never see the light of day. In November, for instance, the agreement set a target of 40.1 million b/d, so if all producers were to suddenly meet quotas, monthly output would have grown by 1.7 million b/d.

This alone indicates the size of the discrepancy within the current production agreement.

Four Key Gains

The November decline of 300,000 b/d was a far cry from the 1 million b/d in physical barrels that the new agreement ostensibly aimed to remove from the market, as both Opec leaders and observers commented in October — a point stressed after a furious reaction of the US White House. As Washington argued, the cut was essentially supporting Russia’s war effort and against a deal the US believed it had with Saudi Arabia.

What prevented a steeper fall were Angola, Nigeria, Kazakhstan, and Russia. Together these four producers raised output by 660,000 b/d last month. Had these four seen flattish activity, then the alliance’s monthly decline would have indeed been close to 1 million b/d.

Such are the vagaries of a production agreement with inherently large discrepancies that have accumulated over two and a half years since May 2020, when the current round of cuts began.

Created with Highcharts 9.0.0($/bbl)OPEC BASKET: OIL RETURNS TO PREWAR LEVELMay '21Jul '21Sep '21Nov '21Jan '22Mar '22May '22Jul '22Sep '22Nov '22$60$70$80$90$100$110$120$130Source: Opec

Diverging Performance

Interestingly, the two halves of the alliance performed at odds in November. The 10 core Opec members managed to decreased output by 550,000 b/d to 24.39 million b/d, while the nine non-Opec countries actually cranked out 250,000 b/d more than in October, for a total 13.75 million b/d.

The four Opec majors with a quota — Saudi Arabia, Iraq, United Arab Emirates and Kuwait — together slashed November production by 920,000 b/d. UAE even produced 30,000 b/d over target, according to our assessment.

Angola and Nigeria are now deemed unreliable Opec producers, so their sudden uptick in output is not surprising. It could easily be reversed. These two remain 1 million b/d short of target, thus comprising one-half of all the alliance’s “missing barrels.”

Outside of Opec, meanwhile, Russia surprised to the upside, raising crude production by 90,000 b/d, to 9.81 million b/d, despite over 1 million b/d of its output coming under sanction in the EU starting Dec. 5.

Kazakhstan, meanwhile, is ramping up the 400,000 b/d offshore Kashagan field, bringing it back in line with its target. The country even overproduced by 50,000 b/d, according to our assessment, and will likely continue doing so in an effort to make up for lost production due to the Kashagan outage in recent months.

Created with Highcharts 9.0.0('000 bbl)OPEC-PLUS SHORTFALL DIVES AFTER NOVEMBER CUTSep'21Oct'21Nov'21Dec'21Jan'22Feb'22Mar'22Apr'22May'22Jun'22Jul'22Aug'22Sep'22Oct'22Nov'2201,0002,0003,0004,000Source: Energy Intelligence

Shortfall Narrows

The new arrangement did succeed in reducing the onerous shortfall that has become synonymous with Opec-plus.

Last month the alliance produced just shy of 2 million b/d less than its target, which compares to an overage shortfall of 3.3 million b/d since May.

As a result, compliance rates have returned from the stratosphere. In November, the rate was 280% — still very high, but not near the levels seen in recent months.

November 2022 Opec-Plus Compliance
OpecBaseTargeted OutputVoluntary CutNov ProductionOct ProductionNov CutCompliance Rate
Saudi Arabia11,50010,47852610,471 10,989 1,029 196%
Iraq4,8034,4312204,372 4,498 431 196
UAE3,5003,0191603,047 3,188 453 283
Kuwait2,9592,6761352,676 2,811 283 210
Nigeria1,8291,742841,015 929 814 969
Angola1,5281,455701,205 944 323 461
Algeria1,0571,007481,029 1,058 28 58
Congo (Br.)32531015261 222 64 427
Gabon1871779224 212 (37) NA
Eq. Guinea127121685 85 42 700
Opec 1027,81525,4161,27324,385 24,936 3,430 269
Iran3,296002,595 2,550 NA NA
Venezuela1,17100640 615 NA NA
Libya1,114001,210 1,205 NA NA
Opec 1333,39625,4161,27328,830 29,3063,430269
Non-OpecBaseTargeted OutputVoluntary Cut Nov Production Oct ProductionNov CutCompliance Rate
Russia11,50010,4785269,812 9,724 1,688 321
Kazakhstan1,7091,628781,678 1,450 31 40
Oman88384140846 893 37 93
Azerbaijan71868433551 547 167 506
Malaysia59556727376 393 219 811
Bahrain2051969196 201 9 100
South Sudan1301246134 160 (4) NA
Brunei10297580 50 22 440
Sudan7572372 73 3 100
Non-Opec 915,91714,68772713,74513,4912,172 299
Mexico1,7531,75301,701 1,698 NA NA
Non-Opec 1017,67016,44072715,446 15,189-- --
Combined 1943,73240,1032,00038,130 38,4275,602 280
Opec 2351,06641,856--44,276 44,495 ----

Gary Peach, New York