OPEC Compliance Carried By The Saudis - Oil Markets Daily

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Includes: BNO, DBO, DNO, DTO, DWTI, OIL, OILK, OILX, OLEM, OLO, SCO, SZO, UCO, USL, USO, UWTI
by: HFIR

Summary

OPEC compliance hits record 94%, according to Reuters survey.

Saudi is contributing the bulk of the supply cuts.

Non-OPEC production ex-Russia will continue to decline even after the conclusion of the deal.

A Reuters survey published today indicated that OPEC's February compliance is at a record 94%.

In the survey, the group sees the supply coming from the 11 OPEC member countries to hit 29.87 million b/d down from a revised figure of 29.96 million b/d and 31.17 million b/d.

The bulk of the supply cuts from OPEC is from Saudi Arabia, which has cut production far more than it agreed upon. Total production cut according to the group was 744k b/d and well above the 486k b/d target.

From our analysis and sources, we have OPEC production cuts in February totaling 1.1 million b/d, up from 800k b/d in January. A 1.1 million b/d cut would be a 92% compliance rate or close to what the consensus currently forecasts. We have Iraq at less than 50% compliance, as export loading figures from Iraq continued to show levels similar to December last year.

The 300k b/d or so increase is the result of lower production from Saudi Arabia and Venezuela. We see production declines in Venezuela continuing for most of this year even after the conclusion of the OPEC deal in May.

As for the members that are excluded from the production agreement: Iran, Libya and Nigeria.

We have Nigeria production figures recovering slightly to 1.65 million b/d, and recent loading figures confirm the production recovery. Libya's oil production has stagnated in February and has dropped relative to January pointing the figure close to 600k b/d. Iran's production remains flat, but its export levels increased from January as a result of depleting its floating storage to Asia.

Overall, the OPEC production agreement is healthy, with Saudi contributing most of the production cuts necessary for the deal, while Iraq continues to cheat on the deal.

As for non-OPEC countries, Russia's energy minister, Alexander Novak, said that Russia accelerated production cuts in February. From what we can tell so far from export figures, Russia's production did decline a bit more, but the compliance rate remains around 65% to the 300k b/d it was supposed to cut. Russia has said repeatedly that its oil production will take time to level off due to the nature of its production fields, so we will likely see more production declines in the months ahead. As for the other non-OPEC countries in the deal, production in February did decline month over month, but as a whole continue to fall below the original deal. However, we believe that even after the deal's conclusion, non-OPEC countries' production will continue to decline whether they are part of the deal or not.

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