Crude oil production by the Organization of Petroleum Exporting Countries (OPEC) and its allies have hit a two-year low on the back of the latest cut by the Kingdom of Saudi Arabia, a Platts survey by S&P Global Commodity Insights has shown.
According to the survey, the disruptions in Kazakhstan and Nigeria also more than offset gains in Iran and Iraq, contributing to an almost 1 million barrels per day (mbpd) fall in OPEC+ output month on month.
“OPEC’s 13 members pumped 27.34 mbpd, while Russia and eight other allies added 13.06 mbpd, for a total of 40.40 mbpd, the survey found. That was the group’s lowest since August 2021, when major cuts implemented during the pandemic were still being unwound,” the survey revealed.
With many parts of the global economy now on a wobbly footing, the OPEC+ alliance has returned to a strategy of aggressive supply restraint to support slumping oil prices, with several members announcing 1.2 mbpd in collective cuts from May through the end of the year and Saudi Arabia unilaterally declaring an extra 1 mbpd cut for July, which has been extended through September.
“Saudi Arabia dropped its production to 9.05 mbpd – the lowest level since June 2021,” the survey found. “The decline was not as steep as its pledged cut, with production falling 940,000 bpd on June volumes.”
Nigeria saw a 100,000 bpd drop to 1.32 mbpd on an outage at Forcados from mid-month that contributed to a sharp drop in exports. Shell Petroleum Development Company suspended loadings of Nigeria’s Forcados crude oil due to a potential leak at the export terminal.
Offsetting the Saudi cut to some extent were increases in output by sanctions-hit Iran and Venezuela. Iranian production was at its highest level since December 2018 at 2.76 mbpd, while Venezuela’s was at its highest level since February 2019 at 810,000 bpd, according to the survey.
The increases were a possible sign that the US has been relaxing sanctions enforcement as it ramps up pressure on Russia in response to its invasion of Ukraine.
Venezuela has also been benefiting from looser US sanctions, with imports of diluent helping boost its heavy oil output.
According to the Platts survey by S&P Global Commodity Insights, Russian production was flat on the month at 9.42 mbpd, as it continued to shift its flows eastward in response to an EU embargo and the G7 price cap.
Though its output has held up much higher than many forecasters had expected at the start of the war, it has now pledged to reduce its crude exports by 500,000 bpd in August and 300,000 bpd in September, as it seeks to bolster prices.
“But because a reduction in exports can be offset by higher domestic demand or moves into storage, it is unclear what impact the declaration will have on Russia’s production in those months.”
Despite the voluntary cuts, Russia and several other members have continued to struggle to hit their production targets, with the total shortfall to quotas at 1.1 mbpd in July, a compliance rate of 115 percent, according to the survey.
The latest meeting of the OPEC+ Joint Ministerial Monitoring Committee on August 4, agreed to maintain quotas to keep supporting prices, with many analysts expecting rising demand in the second half of 2023 along with the OPEC+ cuts to tighten the oil market.
The next JMMC meeting has been set for October 4, with a full ministerial meeting scheduled for Nov. 26. The group could meet before then if it sees market conditions requiring further measures. OPEC members Iran, Libya, and Venezuela are exempt from quotas.
The Platts survey figures measure wellhead production and are compiled using information from oil industry officials, traders and analysts, as well as reviewing proprietary shipping, satellite, and inventory data.
“But because a reduction in exports can be offset by higher domestic demand or moves into storage, it was unclear what impact the declaration will have on Russia’s production in those months,” the survey said.