Opec+ sees no need for change to output policy

Prices continued to fall despite Russia and Saudi Arabia's reaffirmation of their additional supply cuts, writes Nader Itayim

An Opec+ committee recommended no changes to its output policy on 4 October, after Saudi Arabia and Russia reiterated that they would keep additional supply cuts in place until the end of the year.

The Joint Ministerial Monitoring Committee (JMMC) "reaffirmed the commitment of its member countries to the Declaration of Co-operation, which extends to the end of 2024", the Opec secretariat said at the meeting's conclusion.

The technical group, which unites ministers from key Opec+ producers including Saudi Arabia and Russia, met against a backdrop of sliding prices, pulled down by signs of macroeconomic weakness in China and the Atlantic basin. Atlantic basin benchmark North Sea Dated fell below $92/bl on 4 October, its lowest since early September and down from more than $98/bl around a week ago.

Twin announcements by Saudi Arabia and Russia ahead of the meeting, reaffirming their previously communicated intentions to stick with their respective additional crude supply cuts until the end of this year, did little to underpin prices. North Sea Dated fell further to less than $89/bl on 5 October.

Saudi Arabia has been implementing an additional 1mn b/d cut to its production since July, while Russia announced a 500,000 b/d cut to its exports for August, which it tempered to 300,000 b/d from September. Saudi Arabia and Russia said they will each in November review their decisions to extend the supply cuts until the end of this year.

Moscow's decision to cut its exports may have been prompted in part by a recognition that sanctions and G7-led price caps on Russian oil exports have left it unable to find a home for all of its oil.

Russia's deputy prime minister Alexander Novak said on 5 October that the G7-led price caps are not working. Russia's production "is being sold above the ceiling, at market prices", Novak said, as quoted by state news agency Tass. The price cap hurts consumers the most, Novak said — probably a reference to higher global crude prices this year, although they are arguably a result of Opec+ output constraints and Russia's own export cuts. Urals, Russia's main export grade, has traded above the $60/bl price cap since 18 July. The outright Urals price stood at $75.71/bl fob Baltic on 5 October.

Making the cut

Moscow exceeded its 300,000 b/d export cut target in September, according to Argus estimates. Exports of Russian crude averaged 4.42mn b/d in September, 380,000 b/d lower than in the baseline months of May and June. This was an increase of about 120,000 b/d on the month.

Saudi Arabia's production returned to its implied 8.98mn b/d target in September after falling below it in August. Output rose by 80,000 b/d month on month to 8.98mn b/d on higher exports, Argus estimates.

The rise in Saudi production combined with a rebound in Nigerian and Kazakh output helped push output by the Opec+ members with targets to 36.08mn b/d, up by around 530,000 b/d on the month, the highest monthly output rise in over a year (see table). The group drew closer to its combined output target of 36.92mn b/d, producing 840,000 b/d below in September, after falling more than 1.3mn b/d short a month earlier. This narrower deficit was in large part down to the rebound in Nigerian supply and higher Saudi output.

Iraq has been producing above its implied target since July despite the closure of the pipeline that carries around 470,000 b/d of northern Iraqi crude to the Turkish port of Ceyhan. Any resumption of flows along the pipeline could further undermine Iraq's compliance record.