OPEC cuts further as United States turns exporter

• Date: 01 January 2020
• Published date: 01 January 2020
• DOI: http://doi.org/10.1111/oet.12755

LOOKING AHEAD

OPEC cuts further as United States turns exporter

OPEC announced cuts of 2.1 mn bpd at its meeting in

early December, although actual additional cuts may

only amount to about 100 000 bpd from November's

levels, while Russia has secured an exemption for its con-

densate, which could allow a rise. At the same time, US

production keeps rising, making it the world's largest

producer in the summer and a net exporter for the first

time in September. It is unclear what the overall impact

on inventories and prices will be, but prices rose on the

news and it is hoped by OPEC that the cuts will be

enough to prevent any significant stock-build over com-

ing months.

At its seventh OPEC and non-OPEC Ministerial

Meeting on December 6, the group decided to add

503 000 bpd (see Table 1) to the 1.2 mn bpd cut

already implemented (since December 2018), making a

total adjustment of 1.7 mn bpd to be implemented

from January 1. In addition, several participating coun-

tries, mainly Saudi Arabia, will continue their addi-

tional voluntary contributions, leading to overall

adjustments of more than 2.1 mn bpd. It was empha-

sized that all OPEC and non-OPEC countries are re-

committed to abiding by the deal—to date, Russia,

Iraq, Nigeria, and Kazakhstan had not been doing so,

although by the end of November, both Iraq and Nige-

ria had tightened up.

Saudi Arabia would reduce its production by

400 000 bpd below the new quota, which the Saudi

energy minister said was 9.744 mb/d. However, Saudi

Arabia's production in October was reported to be

9.890 mn bpd, and so, that is a reduction of about

150 000 not 400 000 bpd. Using the figures in

Table 1, OPEC's new production in 1Q20 would be

29.44 mn bpd, which is approx. 100 000 bpd lower

than November.

In addition, there are questions over how Russia is

going to achieve a total quota reduction of 300 000 bpd

(228 000 + 70 000). Russia has previously explained

many times that they do not have much control over

reducing production in the winter months without caus-

ing field damage. So, the new production quota will be

only about 100 000 bpd below actual November produc-

tion, which is not much of a change. Global stocks are

therefore likely to build at their fastest rate since 2016 for

the first quarter.

1|UNITED STATES FILLS

THE GAP

While OPEC-plus scrabble over output cuts, US output

continues to soar. In September 2019, it exported

TABLE 1 Additional adjustment volumes

a

, tb/d

Country Adjustment

OPEC

Algeria −

Angola

Congo −4

Equatorial Guinea −1

Gabon −2

Iraq −50

Kuwait −55

Nigeria −21

Saudi Arabia −167

UAE −60

OPEC total −372

Non-OPEC

Azerbaijan −7

Bahrain −2

Brunei −1

Kazakhstan −17

Malaysia −5

Mexico −18

Oman −9

Russia −70

Sudan −1

South Sudan −1

Non-OPEC total −131

Total −503

a

Effective as of 1 January 2020.

Source: OPEC.

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