The latest survey by S&P Global Platts Energy Information found that OPEC and its allies raised crude oil production by 280,000 barrels per day last December to a seven-month high. Libya’s production reached its highest level since mid-2013, while several other countries increased production slightly.
Specifically, OPEC’s 13 members produced 25.43 million barrels per day in December, up 220,000 barrels per day from November, while nine non-OPEC members led by Russia produced 12.74 million barrels per day, up 60,000 barrels per day.
As for the implementation rate of production cuts, Platts Energy Information calculated that OPEC as a whole implemented 98.5% of production cuts in December, down from 100.1% in November. Petro-Logistics, an oil transportation consultancy, even said that the OPEC+ production cut execution rate fell to 75% in December, the lowest level since a new round of production cuts began in May last year.
Among them, OPEC members saw a more pronounced drop in the implementation rate of production cuts, down 10% to 82%; while non-OPEC members fell 8% to 64%.
Let’s take a look at a few key OPEC+ oil producers specifically.
OPEC+’s two big boys are about to “go their separate ways”
Many OPEC+ members, especially Russia and the UAE, have been eager to regain market share lost to the epidemic and have lobbied to ease their own production cut quotas or even increase production; conversely, countries such as Saudi Arabia and Algeria have supported further output restrictions to prevent oil prices from falling back as the epidemic continues to spread.
The survey found that Saudi Arabia’s crude oil production stabilized at 9.01 million barrels per day in December, exceeding its quota of 8.99 million barrels per day for the month, and the tanker tracking service also showed a steady increase in Saudi Arabia’s crude oil exports in December.
Russia, currently the largest OPEC+ producer according to the survey, on the other hand, increased its crude oil production to 9.1 million bpd in December, exceeding its quota by 110,000 bpd.
Under the latest agreement, Saudi Arabia and Russia will “go their separate ways” starting in February.
As agreed last December, OPEC+ will increase production by a modest 500,000 bpd in January; in February and March, Russia and Kazakhstan will be allowed to increase production further, while Saudi Arabia will make a “sacrifice” by voluntarily cutting production by 1 million bpd and other members will maintain their January output levels.
Under the OPEC+ agreement, Saudi Arabia’s production cut quota will increase to 9.12 million bpd in January; Russia’s quota will also be 9.12 million bpd in January, while the quota will rise to 9.18 million bpd and 9.25 million bpd in February and March.
Generally speaking, it is difficult for Russia to increase production during the winter, but its domestic oil companies are already scrambling to increase output as Russia looks to retain some of its market share.
December’s Biggest Production Cut “Cheater”: Libya
In fact, the sharp increase in OPEC crude production in December was largely attributed to Libya, whose output rose to its highest level in six-and-a-half years, according to the survey.
Libya produced 1.18 million barrels per day last month, up 150,000 bpd from November. Libya has managed to increase production by 1 million bpd in the last three months after a peace deal between the Libyan National Unity Government (GNA) and the Libyan National Army (LNA).
However, supply disruptions could still occur in 2021 as the LNA and GNA still need to work out a comprehensive revenue-sharing agreement, around which some turmoil could still be set off.
Iran is also resuming full production. According to the survey, Iran’s production was 2.04 million barrels per day in December, the highest level since March.
Venezuela, which is also under sanctions, has seen its production fall slightly compared to Iran, and its outlook is more grim than Iran’s, as its oil infrastructure has suffered from years of underinvestment, theft and mismanagement.
Under the OPEC+ agreement, Libya, Iran and Venezuela are exempt from production cuts, so a major shutdown in Libya is not expected to affect OPEC+’s production cut performance, however, it would weaken the group’s ability to control its crude supply.
Iraq and UAE rise, Nigeria falls
Finally, let’s look at the situation in other oil-producing countries.
Despite the pain of a deep economic crisis, Iraq’s crude production increased in December, mainly due to a sharp rise in crude exports from the south. The result was an increase in Iraqi crude production of 3.85 million bpd in December, 50,000 bpd above quota.
The UAE also continued to increase production in December, but remained 20,000 b/d below its 2.59 million b/d quota.
Meanwhile, Nigeria posted its best production cut since the alliance began its production agreement in 2017. Nigeria produced 1.43 million bpd last month, down 70,000 bpd from November and the lowest level since August 2016.
This was largely due to the disruption of crude oil production caused by a fire at the country’s Qua Iboe terminal, on which Nigeria relies for exports of one of its major crude grades.
Finally, investors should note that early Wednesday morning the EIA will release its monthly short-term energy outlook report and on Thursday OPEC will also publish its monthly crude oil market report, from which we can get a glimpse of more information about the current state of oil market supply and prospective movements.
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