Opec+ caps January increase as cuts unwind slightly

The Opec+ coalition undershot its crude production ceiling in January, implementing less than a third of its agreed increase for the month, owing partly to a steep decline in Nigerian output.

The 19 countries participating in the supply restraint deal produced 34.55mn b/d last month, roughly 140,000 b/d higher than December but 350,000 b/d below its January target of 34.9mn b/d, according to Argus' survey. This left the group's overall compliance at a seven-month high of 105pc.

Nigeria, which has often struggled to stick to its quota in the past, accounted for a significant share of January's shortfall. Its output was the lowest in Argus records going back to January 1998, dropping by 100,000 b/d from December to 1.26mn b/d, around 260,000 b/d below its cap. Not all of the decline was voluntary. Key grade Qua Iboe only resumed export loadings on 9 January after a 27-day halt caused by a mid-December gas explosion at the export terminal.

As a result, Nigeria has now almost fully compensated for exceeding its quota during earlier stages of the agreement. Opec+ members have until the end of April to make up for past overproduction with additional cuts. Along with Saudi Arabia's 1mn b/d voluntary extra cut in February-March, this should keep the group's total output below its monthly target in the short term.

Saudi Arabia raised production by 140,000 b/d last month — the biggest increase in the group — but was still just below its 9.12mn b/d quota. Riyadh's surprise pledge to make extra cuts over the next two months followed an Opec+ ministerial meeting on 5 January that left most participants with unchanged targets, but gave Russia and Kazakhstan leeway to increase their respective production by 65,000 b/d and 10,000 b/d in February, and again in March. Moscow's increased quota has not translated into higher exports. Loading schedules point to a decline in shipments this month, after the Russian energy ministry asked refiners to increase crude runs in February-April to boost domestic gasoline supplies.

Sylva lining

Deal compliance and depressed crude demand were the two issues that dominated this week's meetings of the Opec+ Joint Technical Committee (JTC) and Joint Ministerial Monitoring Committee (JMMC). The JMMC appointed Nigerian oil minister Timipre Sylva to assist Equatorial Guinea, Congo (Brazzaville), Gabon and South Sudan in improving their compliance. Tighter production discipline, combined with the voluntary Saudi cut, would help offset seasonally low demand, curbed further by Covid-19 lockdown restrictions across Europe. Opec's most recent Monthly Oil Market Report (OMR) forecast that global oil demand will rise by 5.9mn b/d this year, but an internal document seen by Argus showed that the JMMC looked at a scenario in which demand grows by a more moderate 5.6mn b/d.

As well as downward pressure on demand, the Opec+ group has to factor in the prospect of increased sour crude supplies from deal-exempt Iran. Iranian oil minister Bijan Namdar Zanganeh said last month that his country will "return to the market stronger than before, sooner than you think" once US sanctions are lifted. Iranian output recovered to an 11-month high in January, and some analysts pegged Tehran's exports as high as 500,000-650,000 b/d last month.

But, there are signs any Washington rapprochement with Iran might be delayed. Neither US secretary of state Tony Blinken nor US special Iran envoy Rob Malley have spoken with Iranian officials yet, according to the State Department. The recent US seizure of another Iranian oil cargo has further tempered expectations. Iran is unlikely to re-enter the oil market until June-July at the earliest, according to one analyst, and some traders expect Iranian crude to be widely unavailable before the second half of the year.

By Ruxandra Iordache