Saudi Arabia, Kuwait and Algeria may have cut their respective production below the levels they had promised in the OPEC deal, because all three are eager to show not only that they comply with the cuts, but also reduce supply more than pledged, according to JP Morgan Emerging Markets.
“Arguably these states were crucial to the negotiations that forged the deal last year and are keen to demonstrate not just compliance but production cuts that go beyond the agreed level,” JP Morgan Emerging Markets said in research, as quoted by Azeri outlet Trend news agency.
Saudi Arabia, in particular, has the fiscal capacity to cut output below the levels it had agreed with the cartel, the analysts said.
Last week Saudi Arabia’s oil minister Khalid al-Falih said that the kingdom had cut production to below 10 million bpd, the lowest level in two years, and even lower than its commitment to reduce supply by 486,000 bpd to 10.058 million bpd.
Kuwait, for its part, said 10 days ago that it had reduced oil production for January to around 2.707 million bpd, in line with the promised cuts.
But its oil minister Essam al-Marzouq said on Sunday that the cuts could be even more: 146,000 bpd-148,000 bpd.
“Our part of the cut is 133,000. Today I was told that we dropped by 6,000 more, and we might drop to 146,000 to 148,000,” the minister said on TV, as reported by Reuters.
Algeria, whose production cut as per the deal is 50,000 bpd, would reduce January production by 60,000 bpd, and may even cut 65,000 bpd, according to Energy Minister Noureddine Boutarfa, as quoted by Bloomberg. Related: Canada’s Oil Industry Goes On The Offensive
The Saudis are OPEC’s biggest producer, while Kuwait and Algeria sit on a monitoring committee set up to supervise the implementation of the cuts. So it’s no surprise the three countries are trying to ‘lead by example’. The question is whether most of the other producers will comply.
The Saudis, Kuwaitis and Algerians may cut more than pledged, in the meantime U.S. frackers are taking advantage of the situation. The chart below shows the 500,000 bpd production increase since OPEC announced the deal at the end of September.
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By Tsvetana Paraskova for Oilprice.com
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Not sure I understand how has the fiscal capacity to cut more, if they are still running a large budget deficit.