WHILE a number of oil market watchers have continued to raise doubts over OPEC’s commitment to reducing its crude oil output levels, new figures from S&P Global Platts show that the Organisation’s production numbers fell significantly in December – a month before the scheduled start-up of its proposed production reduction programme.
In late November 2016 OPEC ministers completed a deal to freeze production at around 32.5 million b/d, beginning January 1 for six months. The agreement exempts Libya and Nigeria, while allowing Iran a small increase in production.
Platts reports that OPEC’s December oil production fell by 280,000 barrels per day (b/d) due to large declines in output from Nigeria and Saudi Arabia.
“There are some encouraging signs that OPEC will deliver on its promised output cuts,” said Eklavya Gupte, senior editor for S&P Global Platts. “But the crucial question is whether OPEC and non-OPEC can make the compliance stick long enough to clear out the stock overhang. If both Libya and Nigeria post a swift output recovery and compliance starts to wane, the deal would unravel. A close eye will also kept be on the US shale oil industry, as it seeks a rebound in output amid higher oil prices.”
OPEC’s 13 members saw their collective December output fall to 32.85 million b/d from 33.13 million b/d in November. Including Indonesia, which suspended its membership at the organisation’s last meeting, total December output was 33.57 million b/d, also down 280,000 b/d.
OPEC has agreed to cut 1.2 million b/d from its October output level for six months starting from January 1, and freeze production at around 32.5 million b/d, with the total including Indonesia.
As part of global efforts to curb the crude supply glut, 11 non-OPEC countries led by Russia have also agreed to cut output by 558,000 b/d in the first half of 2017, with Russia shouldering the majority of that burden, with a 300,000 b/d reduction.
The December slide comes after OPEC reached a new production record in November and is the first fall in seven months as Saudi Arabia provides an encouraging sign that it is set to lead the cuts by example.
Saudi Arabia saw its production fall to 10.42 million b/d in December, dropping 100,000 b/d from the previous month.
Platts added that in early January, state-owned Saudi Aramco informed its term customers that it is looking to reduce its loadings in February after it suspended operational tolerance in its crude supply contracts from January this year.
Iranian output in December was stable at 3.69 million b/d, signaling significant production rises may have stalled as its mature oil fields urgently need investment and new technology to boost output.
Analysts said that despite a fall in crude oil exports last month, refinery utilization had increased keeping production steady. Tehran recently published a list of 29 international oil companies that are now qualified to participate in the country’s new upstream oil and gas deals, as it hopes to boost production capacity.