Opec+ cuts fall short

Opec+ members bound to production targets cut output by a collective 230,000 b/d only, leaving them far short of the reduction they were expected to make.

Opec+ is holding back output in a bid to "support the stability and balance of the oil market". The alliance in November announced a 2.2mn b/d cut for the first quarter of 2024, which in real terms equated to an additional output reduction of 500,000 b/d. As part of this, Saudi Arabia pledged to extend its 1mn b/d cut until the end of March, while Russia said it would deepen its pledged oil export reduction to 500,000 b/d from 300,000 b/d.

Saudi oil minister Prince Abdulaziz bin Salman suggested at the time that the reductions were an attempt to erase an expected surplus in the first quarter. But Opec+ collectively overshot its target by 350,000 b/d, producing 34.67mn b/d in January, Argus estimates. That Opec+ produced above target represents something of a sea change for the alliance, which has in recent years set unreachable objectives for key members such as Angola and Nigeria. This has changed, with new targets more reflective of actual capacity kicking in for eight members last month. Angola refused to accept its new production allocation and quit the alliance in late December.

The big overproducers in January were Iraq, Kazakhstan and Kuwait — all of which signed up to the additional cuts that the alliance announced in November. Iraq remains the group's number one overproducer, despite giving public and private assurances that it would adhere to its allocation. Iraq reduced its output by 110,000 b/d in January, but this still left it 220,000 b/d above its reduction target of 4mn b/d for the month.

Kazakhstan increased its output by 20,000 b/d to 1.62mn b/d — 150,000 b/d above target. Kuwait's production fell by 80,000 b/d, although this was still 60,000 b/d above its 2.41mn b/d allocation. The key challenge for Opec+ now is getting these members to abide by their pledges.

The UAE was the only member this month permitted to increase its output, despite also signing up to the group's latest cuts. The UAE's official production quota increased by 200,000 b/d in January to reflect its rising capacity, more than cancelling out its first-quarter cut pledge. Its output rose by 20,000 b/d to 2.92mn b/d, leaving it 10,000 b/d above its target.

Heavy lifters

Russian production fell by 40,000 b/d in January to 9.41mn b/d, well within its target of 9.45mn b/d. Saudi Arabia, which has shouldered much of the burden of the group's collective cuts over the past two years, also stuck to its pledge, producing 8.96mn b/d.

Opec+ has announced cuts — either collective or unilateral — worth a cumulative 5.4mn b/d since October 2022. The cuts announced in November are officially scheduled to run until the end of March, but several members, including Saudi Arabia, have signalled that these could be extended.

A surge of new supply from producers such as the US, Guyana and Brazil continues to pressure the alliance to keep production lower for longer. This strong non-Opec+ growth could lead to a substantial surplus if Opec+ begins to unwind its cuts in the second quarter, the IEA says.

But this raises the question over how long Saudi Arabia is willing to hold back 3mn b/d of its own output capacity while letting others produce at will. Saudi Arabia may already be signalling its readiness to claw back market share in Asia after it left its March official formula prices mostly unchanged, when many had been expecting an increase.