• 5 minutes 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 8 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 12 minutes Will Uncle Sam Step Up and Cut Production
  • 34 mins A legitimate Request: France Wants Progress In Ukraine Before Russia Returns To G7
  • 6 hours Danish Royal Palace ‘Surprised’ By Trump Canceling Trip
  • 7 hours Recession Jitters Are Rising. Is There Reason To Worry?
  • 3 hours Used Thin Film Solar Panels at 15 Cents per Watt
  • 7 hours China has invested btw $30 - $40 Billon in Canadian Oil Sands. Trump should put 10% tariffs on all Chinese oil exported into or thru U.S. in which Chinese companies have invested .
  • 14 hours US Shale Economic Impact: GDP gain realized in shale boom’s first 10 years
  • 2 hours IS ANOTHER MIDDLE EAST WAR REQUIRED TO BOLSTER THE OIL PRICE
  • 14 hours Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 20 hours It's Not the Job of the Government to Dictate Where Businesses Should Go
  • 20 hours Offshore subsea sub 50$/bbl : Rystad Energy: High stakes in store for subsea markets if oil falls to $50/bbl
  • 17 hours Philadelphia Energy Solutions seeks to permanently shut oil refinery - sources
  • 18 hours Tit For Tat: China Strikes Back In Trade Dispute With U.S. With New Tariffs
  • 13 hours Domino Effect: Rashida Tlaib Rejects Israel's Offer For 'Humanitarian' Visit To West Bank
  • 12 hours NATGAS, LNG, Technology, benefits etc , cleaner global energy fuel
Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

Can Saudi Arabia Carry OPEC Through Spring?

Faced with budget strains amid low oil prices, Saudi Arabia ditched its pump-at-will policy and brought together the diverse group of OPEC nations to agree to production cuts late last year. Now the cartel’s de facto leader and largest producer is going the extra mile in reducing output, at least in January. The Saudis pledged the biggest cut in the November 30 deal, and last month went beyond the required amount to ensure a high rate of compliance.

Initial estimates by the International Energy Agency (IEA) and OPEC itself show that the cartel’s early compliance to cuts is very high: more than 90 percent. The unexpectedly high rate is almost solely courtesy of Saudi Arabia.

Bloomberg estimates -- based on IEA and OPEC figures -- show that just three out of 10 OPEC members that had promised cuts managed to reduce their output to target production levels in January: Saudi Arabia, Angola and Qatar. Thanks to the Saudis, the cartel’s compliance was 93 percent, with 1.078 million bpd taken off the market compared to a target level of 1.164 million bpd.

Among the 11 non-OPEC nations that have signed up to the OPEC deal, compliance is -- as expected-- low. Only Oman – a Saudi Gulf Arab ally and a member of the Gulf Cooperation Council (GCC) – brought its production within the level it had promised.

Non-OPEC compliance in January was 48 percent, with output reduced by 270,000 bpd compared to a pledge for a total of 558,000 bpd, Bloomberg’s estimates show.

Russia, leading the non-OPEC nations in the deal with OPEC, has pledged to “gradually” cut 300,000 bpd of its output over the first six months this year. In January, Russia reduced its output by 117,000 bpd, according to a statement by Energy Minister Alexander Novak on the homepage of Russia’s energy ministry website. Related: Oil Prices Unlikely To Be Driven Any Higher By OPEC

All in all, out of the 21 oil-producing nations that had promised to reduce output in order to bring markets back to balance and prop up oil prices, just 4 countries fulfilled their pledges in the first month in which the deal entered into force.

All OPEC producers, except for the three special cases given leeway – Libya, Nigeria and Iran - are cutting, with mixed success. While the Saudis, Qatar and Angola achieved their targeted output and others were very close, Iraq was more than 100,000 bpd off target.

Regarding non-OPEC cuts, Russia is yet to show it’s sticking to the deal, but it had said it would be gradually cutting until June. Some seasonal maintenance downtime in the spring and the fact that it is reducing from post-Soviet record highs may conveniently help Russia claim the lowered output as genuine cuts.

Other non-OPEC producers are mostly relying on natural declines of fields to “contribute” to the cuts.

Now the question is … Will the other OPEC members try to catch up on the Saudi-led cuts and fulfill their pledges, or, as history has shown many times, will they leave Saudi Arabia to continue shouldering the cuts and boosting compliance rates. The Saudis, of course, are not cutting more just to help offset non-compliance by Iraq, for example, or higher Nigerian or Libyan output. Saudi Arabia knows that, come May, its domestic oil demand will rise due to the fact that it uses a lot of oil for electricity generation. And it may have to either raise production or cut more from exports.

Seasonally lower global demand in March and April may help both OPEC and non-OPEC producers with compliance in February and March, but further on, with summer approaching and demand rising, more producers will be tempted to cheat, some analysts reckon.

Victor Shum, who leads IHS Energy’s oil market consulting practice in Asia, told CNBC Asia on Tuesday that “Output will likely increase. There’s going to be a slippage in compliance”. Related: A Bloodbath Looms Over Oil Markets

Other experts, like Helima Croft, global head of commodity strategy at RBC Capital Markets, believe that the Saudis and the GCC will continue to cut output and push through the deal, because Saudi Arabia needs higher prices not only to fill in depleted government coffers, but also in preparation for the world’s biggest IPO ever, that of Saudi Aramco, slated for 2018.

“Yes, you could maybe have an Angola fall off, but I think the core GCC powers this decision through,” Croft told CNBC.

But it looks like the oil market has already priced in that decision and the high compliance and is now in a “wait-and-see” mode for evidence to what extent the supply-cut deal has been helping draw down excess global oil inventories.

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment
  • Bonaventure Stephen Gomes on February 16 2017 said:
    OPEC, and non-OPEC cuts in production draws similar analogy where retail shopping offers discounts to its customers, for example, the prices are marked up ten percent (10%), and then a discount of ten percent (10%) is offered on the marked-up price. Likewise, these oil-producing nations were already producing high above their normal threshold of production, and then offering to lower production did not tantamount to a cut in oil production. This is a marketing ploy played by the oil-producing nations.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play