September production estimates from OPEC+ suggest that collectively it is about 3.6 million barrels per day behind the expected level.
When the new targets take effect on November 1, only eight countries will be required to pump less crude. Besides the three Gulf Arab neighbors, small reductions are also expected to come from South Sudan, Algeria, Gabon, Iraq and Oman.
The total reduction demanded of them is only 890,000 barrels per day. This is still a significant reduction, but far from the overall figure.
However, don’t expect the cut to be that big. You can forget South Sudan, Gabon and probably even Iraq.
OPEC’s own data shows that South Sudan has not only exceeded its quota every month since the current deal took effect in May 2020, but has never cut a single barrel of production. . It would be surprising if it started now.
Gabon showed a similar lack of determination. Its output has been below its cap in just one month of the deal’s 29-month history, according to OPEC data.
As for Iraq, the country’s oil minister wasted no time after Wednesday’s deal was finalized to assure oil buyers that the deal would not affect his country’s exports. With little room to modify home use, this really means there’s no reduction in production either.
This narrows the list down to five.
The reductions requested from Algeria and Oman total 32,000 barrels per day; it’s little more than a rounding error in assessing the band’s overall output.
The cuts demanded from Saudi Arabia and its neighbors amount to 790,000 barrels per day, but even that could be offset by increased production from some other members of the group.
Nigeria, Angola and Malaysia are all facing declining production capacity and have been pumping below target for many months. That probably won’t change. Russia is also in trouble. He was already struggling to keep up with his growing stipend before President Vladimir Putin ordered his troops into Ukraine, and the situation has only gotten worse in the months since. invasion.
But Kazakhstan is different. Production is more than 560,000 barrels per day below target on a combination of scheduled maintenance at one of its largest fields and a gas leak at another. Completion of maintenance this weekend is expected to return approximately 260,000 barrels per day. The rest will take longer, but the country’s energy minister says he should be back by the end of the month, just in time to make up for the planned reduction.
If he’s right, the actual reduction in production, measured from current production, could be down to 230,000 barrels per day – hardly worth getting upset about.
But a month later, the situation may look very different. European Union sanctions on exports of Russian crude come into effect on December 5 – the day after the producer group is due to hold its next meeting. The restrictions target most sea shipments to bloc members, which have already fallen to around 660,000 barrels per day from 1.6 million barrels in January.
Russia has successfully diverted much of the crude avoided by European buyers to India, Turkey and China; but the sanctions, which also aim to limit shipments to non-European countries, could have a much greater impact. Russia’s own tanker fleet is not big enough to transport all the oil that should be diverted from Europe. This could force production cuts. A proposal to cap prices on Russian crude would provide the Kremlin with a way out – exempting shipments sold at a price that has not yet been agreed from sanctions – but Moscow seems determined not to accept it.
If the Kremlin decides to shut down production instead of agreeing to a price cap, which seems likely, the OPEC+ cut of 2 million barrels per day could suddenly become very real.
One thing is for sure, crude is on a rollercoaster ride for the remainder of 2022.
This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Julian Lee is oil strategist for Bloomberg First Word. Previously, he was a senior analyst at the Center for Global Energy Studies.
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