On the Naughty Step

Today’s Opec Monthly Oil Market Report indicates an impressive over-compliance with pledged cuts. The compilation of secondary source assessments of February production puts it at 31.96mn b/d, down by 140,000 b/d on January, and well below the target 32.68mn b/d. That’s a cut of 2.13mn b/d, compared with a planned cut of 1.17mn b/d.

One swallow doesn’t make a summer – but a self-administered pat on the back would be excusable.

Historic and current distrusts mean that over the years Opec itself has not used members’ own numbers to judge compliance with cuts and quotas – it is the secondary source figures that are used. But it’s often interesting to see what member countries are saying about their own production and try to divine the message behind them.

So, Saudi Arabia has declared its February production at 10.01mn b/d, a hefty rise of 263,000 b/d on the January figure (and well above the secondary source estimate of 9.8mn b/d). Riyadh’s number keeps Saudi Arabia in the good book because it is a touch below the 10.06mn b/d agreed in Vienna in November. But the message is, surely, that the dip below 10mn b/d in January was just to kick start the Opec-non-Opec six month co-operation deal to take 1.8mn b/d out of the market – the base line is the 10mn b/d established last year. That complements comments made by oil minister Khalid al-Falih last week when he said the country’s ability to swing its crude output is limited by its need for associated gas to meet part of its demand for petrochemicals feedstock. “We cannot do what we did in the 1980s and 1990s by swinging in the millions of barrels to respond to market conditions,” he said.

Iraq says its February production was 4.57mn b/d, a drop of 64,000 b/d from its own January figure but still well above the 4.35mn b/d it was allotted. That makes its own measure of its non-compliance higher than that of secondary sources, which see February output at some 4.41mn b/d. Baghdad has put itself on the Naughty Step. Why? Well, one reason could be that it’s an honest recognition that it can’t fully control what flows to Ceyhan from fields largely controlled by the Kurdistan Regional Government. But it may also be a deliberate dragging of feet in protest at a 210,000 b/d cut allocation it thought excessive given its internal security situation. It can draw some comfort though from the relatively small discrepancy between its own production number and that of secondary sources – the variation in estimates generated much wailing and gnashing of teeth last summer.

Unusually, Iran has not supplied a figure for February. Believe them or believe them not but Tehran’s numbers are usually in on time. It was given licence in November to raise its production by 90,000 b/d to 3.8mn b/d, as recognition that it is still recovering from US and EU sanctions. But that meant it had to swallow the pill of agreeing to hold production below the magic 4mn b/d. Still, for domestic political reasons it may be wise to hint at output nudging 4mn b/d. Indeed, for December, before the cuts applied, it claimed 4.01mn – a message to the masses that the target had been reached and anything less would be modest and temporary. The declared January level was 3.92mn b/d. Secondary sources have been less sanguine about Tehran’s ability to hit 4mn b/d in the short term although they do put February production just above 3.8mn b/d.

Venezuela signed up to average production over the first half of 1.97mn b/d. It was a major protagonist in the campaign for cuts and does deserve recognition for its diplomatic efforts. So why would it tell the world that it over-produced in both January and February, at some 2.25mn b/d, around a quarter of a million barrels a day more than secondary source estimates? Answers on a postcard, please, but again domestic politics seem a likely explanation – whatever the imperialists say, our economy is not going to hell in a handcart.

Finally, the Nigeria number is of interest. Abuja says its production slipped marginally in February compared with January, to 1.53mn b/d, while secondary sources saw a rise of 58,000 b/d to 1.61mn b/d. Along with Libya, Nigeria’s sick note on the grounds of domestic unrest was accepted in Vienna and it was excused cuts. But with talk starting now of an extension to the six month deal, maybe the government doesn’t want its output recovery to look too impressive or permanent.

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