OPEC supply-cut compliance runs up

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OPEC has delivered record-high adherence to its oil output-cutting pact so far in 2017, but with laggards Iraq and the UAE yet to show how they can meet their prescribed targets, sources say a refocusing on exports may be the key to further progress.

The two major producers have shown relatively low compliance with the agreement based on figures from secondary sources – government agencies, consultants and industry media – that OPEC uses to monitor its output.

Both countries stress their commitment to the deal, aimed at draining global oil inventories and lifting crude prices out of a three-year slump.

But they complain that the secondary sources’ assessment of their production before the pact took effect in January was too low.

As a result, in their opinion, the two countries have the unpalatable task of making an even bigger cut to comply fully.

“Iraq has high conformity, but secondary sources’ figures are still our problem,” said an industry source familiar with Iraqi thinking.

The United Arab Emirates’ Ministry of Energy said in a statement: “The UAE is committed to cut its oil production by 139,000 barrels of oil per day, and we have and will continue to meet this commitment.”

Iraq did not comment officially for this story.

UAE Energy Minister Suhail bin Mohammed al-Mazroui told Reuters in April the country was complying 100 percent with its own figures. Iraq’s oil minister, Jabar al-Luaibi, has said the country is adhering fully.

In addition to the countries’ issues with their OPEC targets, rising domestic needs and international commitments are obstacles. Iraq was initially against cutting production since it needed cash to fight Islamic State. Both countries have been expanding output capacity in recent years.

The Organization of the Petroleum Exporting Countries, Russia and other producers pledged last year to cut production by about 1.8 million barrels per day (bpd) from Jan. 1 for six months. The pact was prolonged until March 2018 and might be extended further.

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Officials from a joint OPEC and non-OPEC technical committee will meet in Abu Dhabi on Aug. 7-8 to discuss ways to boost compliance with their supply reduction agreement.

“There was a call for a meeting, as there is a need to align all countries to achieve 100 percent compliance,” a source close to OPEC said.

The Abu Dhabi talks follow a July 24 meeting of an OPEC and non-OPEC ministerial group, known as the JMMC, in Russia.

According to sources familiar with the matter, the ministers held a conference call with the UAE and Iraq from inside the closed-door meeting to discuss the two countries’ compliance.

Both countries confirmed their commitment to the pact but offered no concrete plan on how to meet their production targets, the sources said.

Saudi Energy Minister Khalid al-Falih said the Joint Technical Committee, which monitors compliance with the cuts, would also study export data.

“Exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data and our monitoring mechanism,” Falih said at the JMMC meeting.

Iraqi officials believe that monitoring exports is more important than production because the former have a direct impact on the market.

“Our records show that Iraq’s exports are declining and the conformity is increasing over the last six months,” another industry source said.

Baghdad said its exports fell to 3.230 million bpd in July from 3.273 million bpd in June.

Production data gives a different picture. Iraqi figures submitted to OPEC show June output at 4.55 million bpd, higher than its output target of 4.351 million bpd under the pact.

UAE EXPORT CUTS

The UAE is showing lower compliance than others in the core Gulf OPEC group, because it is using its own, higher, output level as a reference point for its supply cut, rather than the supply baseline used in the agreement.

But the country says it is trimming exports and has been informing customers of monthly allocation cuts throughout 2017 to meet its OPEC commitment. State-owned Abu Dhabi National Oil Co said it would cut crude allocations by 10 percent for September for the majority of its customers.

Crude allocations in coming months will remain low, according to people familiar with the matter.

Like Iraq, the UAE’s own figures suggest it has further to go than other big OPEC producers to comply fully. (Reuters)

Article source: In-Cyprus – Read more..

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