Saudi Arabia has reduced oil production for a maximum of eight years

Oil field in Saudi Arabia

Photo: Ali Jarekji / Reuters

Saudi Arabia exceeded the plan to reduce production in January in a deal OPEC. Iraq, Iran and Venezuela, by contrast, produced more than that stipulated in the agreement on balancing the oil market

Exceeded plan

Saudi Arabia reported on the fulfillment of the plan of reduction of oil production in the framework of its obligations to the other members of OPEC and non-cartel countries. According to own data of Riyadh, which he handed to OPEC (published in the monthly report of the organization on Monday, February 13), in the January production of the Kingdom fell 717,6 thousand barrels. a day to 9.75 million barrels. a day. So dramatically, Saudi Arabia has not cut production since the beginning of 2009, says Bloomberg.

In the report OPEC traditionally presented an alternative data mining based on external information sources (e.g., sectoral agencies like Platts). According to these, Saudi Arabia in January have reduced production by 496 thousand barrels. a day, in line with the target set in the framework of the transactions for balancing the world oil market. Total January volume of OPEC production fell by 890 thousand Barr. a day, up to 32,14 million barrels. Except not participating in the deal, Libya and Nigeria, had declined to 29.9 million barrels. a day.

“OPEC did a great job surprising almost all analysts, — quotes Bloomberg words of the Spencer Welch, Director of the direction “oil markets and processing” provider IHS economic analysts Markit. — Especially to comply with the agreement tried Saudi Arabia.” Saudi official data indicate that the country produces on 310 thousand Barr. a day short of the target agreed upon with partners. In December 2016, energy Minister Khalid al-falih said that the Saudis are ready to surpass the plan to reduce production in order to demonstrate commitment to the commitments they have made.

About the arrangements of the OPEC countries became known on November 30, 2016. And on December 10, eleven countries outside the cartel, including Russia, Kazakhstan, Azerbaijan, Oman and Bahrain, has pledged in total to reduce their oil production to 558 thousand barrels. per day from January 2017. The deal is aimed at the elimination of excess supply, which was observed in the oil market the last three years and caused harm to dependent on oil export economies.

The November announcement of the transaction triggered a jump in oil prices by 20%, but then the prices dropped on concerns that the recovery in US production compensates for the reduction in the cartel. Oil prices went down Monday, February 13, despite OPEC data. The April Brent contract fell 1.9% to $55.6 per barrel as of 20:00 GMT, the March futures WTI rose by 1.7%, to $52,94 per barrel. “The fact that these OPEC did not support quotes, suggests that now the price level is considered to be too high,” said Bloomberg commodities analyst at Commerzbank Carsten Fritsch. Can Saudi Arabia continue to comply with the obligation to 100% — a big issue, especially when many other countries do not, he added.

Conflicting data

The conclusion of the November agreement was preceded by controversy about what production data is considered more reliable official statistics or compiled data of six independent providers — and they both appear in the reports of OPEC. Last played against Iraq, but in the end the basis of agreement put it.

According to official data, in January, Iraq exceeded its quota for 279 thousand barrels. in the day, Venezuela on 278 thousand Barr., Iran — 123 thousand barrels. Independent sources of OPEC indicated that the 11 countries participating in the agreement not fulfilled obligations to reduce their production by 117 thousand barrels. a day, their production in January amounted to 29,92 million barrels. a day, reported Bloomberg.

Oil pumps on lake Maracaibo in Venezuela

Photo: Isaac Urrutia / Reuters

The amount of OPEC have cut production in January, is insufficient to balance the world oil market, not to mention how to eliminate excess stocks of oil and oil products, constituting, according to the cartel of the order of 300 million barrels., to the report. If the organization will continue to produce oil at the level of January, the surplus production in the first half will be about 800 thousand barrels. on the day, resulting in excess stocks of oil will increase by 140 million barrels., calculated by Bloomberg. Rebalancing the market could contribute to higher than expected demand. OPEC raised its estimate of global demand growth for raw materials in 2017 for 35 thousand Barr.a day, to 1.19 million barrels. a day. In these circumstances, demand is 95,81 million barrels. a day.

Weak discipline

OPEC countries are meeting their pledges to reduce production by 92%, told journalists the Minister of oil, Kuwait’s Essam al-marzouk. Reuters cites a comparable figure is 93%. In total, the cartel needs to reduce the rate of 1.2 million barrels. a day. Producers outside the organization, fulfill the responsibilities of more than 50%, the official added. Reuters, citing sources in OPEC, leads a more modest estimate of 40%. Outside the cartel, the country has reduced production by 269 thousand barrels. per day against the agreed 558 thousand Barr., it follows from preliminary data from the International energy Agency (IEA), published 10 Feb. This reflects the fulfilment of transaction obligations by 48%, calculated by Bloomberg based on data from IEA.

Incomplete compliance on production cuts is partly due to the phased implementation of the deal with Russia, Reuters concludes. Oil prices are now at a good level, they will grow as further the implementation of the transaction OPEC and other producers, said al-marzouk. “In February we will ask representatives of countries outside of OPEC to cut production, according to the agreement”, — concluded the Minister. The representative of the Russian Ministry of energy declined to comment in response to a request to RBC.

Russia’s Contribution

Russia in January 2017 cut daily oil production by 117 thousand barrels. a day. It is more than two times more than the initial plans of the companies, said Minister of energy Alexander Novak at a meeting with President Vladimir Putin on 1 February. According to Reuters, the decline in production amounted to 100 thousand Barr. a day. Semi-annual plan calls for a reduction of 300 thousand barrels. a day.

According to CDU TEK, among the Russian companies most of all production in January decreased “Gazprom Neft” — compared with December 2016 is 8.1%. Production of LUKOIL for a month has decreased on 0,7%, “Rosneft” — on 0,4%. From large companies to cut production in January could not only “Bashneft”: compared to December, it rose by 0.8%, but compared to October 2016 declined 0.2%. The company cut production voluntarily because it is profitable and budget, and by the oilmen, said Novak.

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