Opec+ falls short in April

Opec+ production fell massively short of its target in April as capacity constraints and international sanctions undermined supply.

Output by the Opec+ coalition was down for the second consecutive month, dropping by around 500,000 b/d compared with March to 37.56mn b/d in April. Production was nearly 2.4mn b/d below the group's combined target of 39.94mn b/d for the month — an 890,000 b/d increase in the shortfall between the target and actual output compared with March.

The fall in Opec+ output was driven by an 870,000 b/d slump in Russian production to 9.13mn b/d, a 16-month low. Many European refiners and trading firms have cut back on Russian crude purchases ahead of EU and Swiss sanctions that come into effect on 15 May. The European Commission has proposed an "orderly" phasing out of EU oil imports from Russia by the end of this year, but the proposal faces some resistance and demands for carve-outs from EU members Hungary, Slovakia and the Czech Republic.

Lower Russian production more than offset a 500,000 b/d increase in supply by Opec member countries that are subject to targets as Saudi Arabia and Iraq boosted output. But total Opec production was only 330,000 b/d higher on the month owing to renewed disruption in Libya. Libyan oil production fell by as much as 530,000 b/d during the month after protests starting on 17 April that led state-owned NOC to declare force majeure restrictions at Libya's largest oil field and two export terminals.

The latest production figures, as estimated by Argus, highlight the difficulty that the Opec+ coalition increasingly faces in meeting production targets that are scheduled to rise in line with a roadmap outlined last summer. The group agreed on 5 May to maintain a scheduled 432,000 b/d increase in its June crude production ceiling.

UAE energy minister Suhail al-Mazrouei said the decision came as the group sees the market as balanced, particularly in the wake of demand weakness in China arising from its strict Covid-19 lockdown measures. He also pointed to the uncertainty over the production and export from some countries in the Opec+ group, like Iran and Russia, which are currently under sanctions and choosing not to disclose supply data. "So, we are balancing all these factors. And trust us, when it comes to these balances, we don't see a huge shortage."

Russia was around 1.3mn b/d short of its target in April when its quota was 10.44mn b/d and its target will rise further this month, but its production outlook is uncertain. The IEA has said that nearly 3mn b/d of Russian production could be shut in from May, but Russia's deputy prime minister Alexander Novak is more optimistic. "The indicators at the start of May, are better than April. The situation is stable. Output has risen in comparison with April," Novak said, according to state-owned news agency Tass.

But other countries are also coming up short. Nigeria and Angola together were producing 560,000 b/d below their combined target in April against a backdrop of underinvestment and disruption to supply in Nigeria and declining output at mature fields in Angola.

Spare production capacity is concentrated in only a few countries, namely Saudi Arabia and the UAE. But Saudi Arabia is unlikely to want to increase output above its target to help offset Russian supply losses as this would undermine the unity that has made the Opec+ coalition effective while also eating into its spare production capacity.

Ministers are also mindful of pressure on oil demand growth, arising from strict lockdown measures imposed in China. A report prepared by the Opec secretariat for the Opec+ Joint Technical Committee (JTC) meeting forecast that global oil supply will exceed demand by 1.9mn b/d this year.

China has imposed strict lockdown measures in Shanghai and neighbouring regions, and even in Beijing, to tackle a rise in coronavirus infections.