Voluntary cuts push Opec June output to record low

Market: Crude oil
09/07/20

Opec production was the lowest on record in June, when three Mideast Gulf countries made additional voluntary cuts and others improved their output restraint.

Overall group output fell by 1.82mn b/d from May to 22.28mn b/d in June, the most depleted level since Argus began keeping records in January 1998.

The decline came as Saudi Arabia, the UAE and Kuwait pledged combined extra cuts that took their respective ceilings under the Opec+ deal down to 7.49mn b/d, 2.35mn b/d and 2.09mn b/d for the month. This commitment prompted Saudi Arabia and Kuwait to interrupt production at the recently restarted offshore 300,000 b/d Khafji field in the shared Neutral Zone throughout June.

Saudi Arabia cut crude output by 930,000 b/d from May to 7.57mn b/d, its lowest since July 2002. Sales reflected the decline, as exports fell by 683,000 b/d to 5.6mn b/d, with 20-30pc cuts to nominations of some Asia-Pacific clients. Analysts said some of the June exports came from storage.

The three Mideast Gulf producers will not replicate their voluntary cuts in July. Otherwise, the broader Opec+ group has extended its June cuts into this month. Using a largely October 2018 baseline, the 23-nation coalition aimed to reduce output by 9.7mn over May-June, and targets a 9.6mn b/d cut this month, with the slight change because non-Opec Mexico will no longer contribute.

The extension has come with a Saudi-led focus on individual countries' compliance. The Opec+ Joint Ministerial Monitoring Committee (JMMC), which will meet monthly to discuss conformity, found that Opec+ respected just 87pc of their May pledges and that historical Opec over-producers Iraq and Nigeria again struggled to curb their output.

"We have no room whatsoever for lack of conformity," Saudi oil minister Prince Abdulaziz bin Salman said on 8 June. "We have no stomach for any types of laxities in terms of self-imposed obligations that need to be attended to." Laggards were pushed to submit production plans detailing how they will compensate for excess May output in the June-September period.

Production in Iraq and Nigeria fell sharply in June, although both still missed their targets. Iraqi output dropped by 350,000 b/d to its lowest since April 2015, and Nigerian production was the lowest since August 2016.

Baghdad's new oil minister Ihsan Ismael has instructed caps on federal exports, and state-owned marketing firm Somo asked some buyers to forego already contracted June volumes. Nigerian state-owned NNPC's managing director Mele Kyari expects to reach full compliance with its 1.41mn b/d production quota by the middle of this month, although export loading schedules for August show a level above Nigeria's output limit.

Angola, where underinvestment and mature fields have limited production in the past, was just 71pc compliant in May and was asked to compensate. It improved adherence in June, when a 15-year production low of 1.15mn b/d made it 109pc compliant.

Venezuela contributed to the Opec June output drop, although it is excluded from the Opec+ deal. Internal production reports from state-owned PdV showed declines accelerating to as little as 300,000-350,000 b/d in mid-June because of storage and export constraints caused by US sanctions.

By Ruxandra Iordache

Opec wellhead production				mn b/d
	June	May	June target	Compliance %

Saudi Arabia	7.57	8.50	8.49	137
Iraq	3.75	4.10	3.59	85
Kuwait	2.05	2.23	2.17	118
UAE	2.31	2.48	2.45	119
Algeria	0.80	0.81	0.82	107
Nigeria	1.54	1.58	1.41	69
Angola	1.15	1.28	1.18	109
Congo (Brazzaville)	0.30	0.28	0.25	34
Gabon	0.21	0.19	0.14	-53
Equatorial Guinea	0.13	0.09	0.10	-10
Opec 10	19.81	21.54	20.60	113
Iran	1.98	1.93*	na	na
Libya	0.09	0.08	na	na
Venezuela	0.40	0.55	na	na
Total Opec 13Ϯ	22.28	24.10	na	na
*revised
ϮIran, Libya and Venezuela are exempt from production targets

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