OPEC keen to extend cut, Russia is cautious

By Worldoil.com

LONDON (Bloomberg) –For an OPEC+ meeting in which the key decision over an output-cut extension is supposedly “in the bag,” according to Saudi Arabia’s Energy Minister Khalid Al-Falih, Monday’s gathering in Vienna could be as closely watched as any during the three-year coalition.

The Organization of Petroleum Exporting Countries and its allies convene next week to discuss extending a 1.2 MMbpd into the second half. While the cartel’s three biggest members—Saudi Arabia, Iraq and the United Arab Emirates—are all willing to continue the policy of reduced production, Russia remains circumspect, prompting questions over potential changes to policy.

Meanwhile, myriad uncertainties cloud the oil market outlook. An ongoing U.S. and China trade spat is stoking fears over demand growth, while escalating tension between the U.S. and Iran has heightened geopolitical risk in the world’s biggest oil-producing region.

Following are the latest positions of most of OPEC, plus non-OPEC members Russia and Azerbaijan. The respective shares of supply are based on May output. Estimates for the price each member needs to balance its 2019 budget are from the International Monetary Fund, unless otherwise specified.

Algeria

Price needed: $116.40/bbl

Share of OPEC production: 3.3%

Algeria’s output has remained relatively stable at around 1 MMbpd, according to Bloomberg data. Political uncertainty is emerging, however, with a presidential election and transition of power pending in 2019, following the April resignation of aging President Abdelaziz Bouteflika after two decades.

Angola

Price needed: $80/bbl (RBC)

Share of OPEC production: 4.8%

Underinvestment and a natural decline in maturing oil fields has resulted in Angola’s output falling by about 350,000 bpd over the last four years, averaging 1.44 MMbpd in 2019. That’s the lowest in more than a decade and less than OPEC’s assigned quota of 1.48 MMbpd, meaning it is likely to back an extension.

Azerbaijan

Price needed: $50.60/bbl

Saudi Arabia got a fillip last week when Azerbaijan, one of OPEC’s biggest allies, said it supports an extension of the production-cuts deal into the second half. “It would be right to extend the same regime” unless something happens to change the current situation, Azeri Energy Minister Parviz Shahbazov told reporters. Kazakhstan, its Caspian Sea neighbor, also backs an extension.

Iran

Price needed: $125.60/bbl

Share of OPEC production: 7.7%

Iran’s crude output and exports tumbled after U.S. President Donald Trump blocked oil sales in May. Observed crude flows dropped to 190,000 bpd in the first half of June, less than a tenth of the volume shipped in early 2018, according to Bloomberg data. Production is now at the lowest level since the 1980s.

Iraq

Price needed: $64.30/bbl

Share of OPEC production: 15.5%

Despite a poor record of adherence to the deal (implementing just 26% of its pledged cuts on average in 2017 and 2018) Iraq’s Oil Minister Thamir Ghadhban reaffirmed his commitment to the OPEC+ production cuts. Ghadhban had previously said that Iraq, OPEC’s second-largest producer, sees the group and its allies extending production cuts “at least” on current terms without “serious difficulties.” Crude output has held steady above 4.5 MMbpd in 2019.

Kuwait

Price needed: $48.80/bbl

Share of OPEC production: 8.9%

Kuwait will support OPEC’s oil-production cuts until the end of 2019 when the group meets in Vienna next week, Kuwait Oil Minister Khaled Al-Fadhel told state-run Kuwait News Agency. The country has been in full compliance with output cuts. It curbed more than was pledged in May, trimming output by 99,000 bpd, against a required 85,000 bpd.

Libya

Price needed: $71.30/bbl

Share of OPEC production: 4.1%

Exempt from cuts, Libya’s production reached 1.25 MMbpd in May, a six-year high. Threats to production remain, however, as Libya’s eastern commander, Khalifa Haftar, in June vowed to press ahead with an offensive on the capital until militias there are disbanded. He also intends to dissolve the UN-backed government currently headed by Prime Minister Fayez Al-Sarraj.

Nigeria

Price needed: $150/bbl (RBC)

Share of OPEC production: 6.2%

Nigeria’s production exceeded 1.8 MMbpd in 2019 thanks to the ramp up at Total’s Egina offshore field. This means the country has cut output by less than pledged. In May it only reduced output by 5,000 bpd (or 9%), against a pledged 53,000, making it the least compliant of all 21 nations signed up to the deal.

Russia

Price needed: $40/bbl (Energy Ministry)

Russia has spent 2019 inching toward its output commitments, finally reaching its target in May. It was aided in its task with the discovery of contaminated crude in its main export pipeline to Europe. Non-OPEC’s largest producer has maintained a wait-and-see policy regarding an extension. “We have certain differences in opinion regarding the fair price” compared with Saudi Arabia, President Vladimir Putin told reporters in June. “$60-65/bbl suits us just fine” because Russia’s budget is based on $40 crude, he said.

Saudi Arabia

Price needed: $85.40/bbl

Share of OPEC production: 32.9%

Energy Minister Al-Falih is confident a deal will be done, with the only question being whether there needs to be an adjustment to the pledged cut level in the second half. Saudi Arabia agreed to reduce production by 322,000 bpd for the first half of this year. In May, it cut by an average of 943,000 bpd instead, achieving a record 293% compliance rate.

UAE

Price needed: $65/bbl

Share of OPEC production: 10.1%

Energy Minister Suhail Al-Mazrouei is “not expecting a very difficult process in approving the extension,” with discussions at the July meeting set to focus on the duration of the agreement, he said in late June. The country is still targeting higher crude output in the longer term, with the chief executive officer of Abu Dhabi National Oil, Sultan Ahmed Al-Jaber, saying it will increase oil output capacity to 4 million bpd by 2020, and 5 MMbpd by 2030.

Venezuela

Price needed: $276/bbl (RBC)

Share of OPEC production: 2.7%

Crippling economic sanctions and years of mismanagement means production continued to decline this year, plunging 34% to May. This follows a 28% drop in 2018. Output for May was at 810,000 bpd, the lowest since January 2003, according to Bloomberg data.