Opec+ output rose in February but shortfall widened

The Opec+ alliance raised its collective crude production by 340,000 b/d last month but the gap between output and target widened again, to 890,000 b/d, in a month of escalating calls for it to raise supply faster.

Production from Opec+ participants was 38.25mn b/d in February, up from 37.91mn b/d in January but below the target of 39.14mn according to an Argus survey.

Notably, the quota-exempt Opec members Iran and Libya raised output by a combined 170,000 b/d in February, with the north African country accounting for 130,000 b/d of this after an early-January restart of four crude and condensate fields. But 14 of the wider group's 19 members produced below quota in the month, as dwindling spare capacity, underinvestment and infrastructure restraints have constrained output increases at a time when international sanctions relating to the conflict in Ukraine are raising doubt about the reliability of Russian supplies.

The country exports at least 4.5mn b/d of crude, and there is the possibility of an effect on the 1.34mn b/d of Kazakh CPC Blend, which contains marginal Russian oil but is exported from the country's Black Sea port of Novorossiysk. The US and the UK have already taken action to phase out Russian hydrocarbon imports, and front-month Ice Brent crude prices have risen from below $80/bl at the start of the year to at one point trade intra-day near $140/bl this month.

The Opec+ group's stance on rising prices is they are down to geopolitics and not market fundamentals, with Opec secretary-general Mohammed Barkindo saying this week "we have no control over current events".

Opec+ ministers will meet on 31 March to decide a production strategy for May, when five countries — Russia, Saudi Arabia, Iraq, Kuwait and the UAE — will see upwards revisions to the baseline levels that determine their quotas and compliance. This would see the combined monthly output quota increase move to 432,000 b/d from 400,000 b/d, which could go some way to satisfying the IEA. It has called for Opec+ to raise the pace of production increases, and its executive director Fatih Birol openly expressed disappointment at the previous Opec+ meeting's outcome.

But Russia's 10.331mn b/d target for this month already exceeds its Argus-assessed capacity of 10.3mn b/d, and Argus estimates Russian output fell by 10,000 b/d in February. Of the Opec countries, only the UAE and Saudi Arabia has substantial spare capacity, and delegates have said the Opec+ group is unlikely to allow producers with higher capacity to compensate for those with lower output.

This week there appeared to be a sign of a break in this approach, when the UAE ambassador to the US said his country "favour[s] production increases and will be encouraging Opec to consider higher production levels." But a UAE source said the ambassador was misunderstood, and the country's energy minister Suhail al-Mazrouei reassured it is "committed to the Opec+ agreement and its existing monthly production adjustment mechanism." Iraqi state marketer Somo also expressed support for the planned Opec+ increases, which it said "are sufficient to address any shortages that may occur in supply."

The sanctions-struck Iran and Venezuela could provide additional sour crude supplies, similar to Russia. Talks are ongoing in Vienna that could see Iranian crude return to the market, and the US has engaged with Venezuela although it is unclear if this latter diplomacy will lead to sanctions being lifted. Analysts said neither country would be able to fully compensate for a complete loss of Russian supply.

By Ruxandra Iordache