Opec says March output cuts beat target – but Russia lags behind

In its regular monthly report, the Opec secretariat said the group overall cut production by almost 153,000 barrels per day last month, to a total just below 32 million bpd.

Opec agreed last November that it would reduce output by 1.2 million barrels per day, to 32.5 million bpd, for an initial six-month period starting in January. Carlos Jasso / Reuters

Opec said its members kept production below target for the third straight month in March, although it noted that Russia, which is part of an output restraint deal, again fell well short of its pledged cut.

In its regular monthly report, the Opec secretariat said the group overall cut production by almost 153,000 barrels per day (bpd) last month, to a total just below 32 million bpd.

Oil prices have climbed back up to this year’s highs as sentiment about the effectiveness of the deal has brightened, particularly as new information about seaborne oil inventory in the Caribbean, offshore Iran and elsewhere has offset worries of rising inventory in the US. North Sea Brent futures were up 23 cents at US$56.46 per barrel in late afternoon trading Arabian Gulf time.

The producer group agreed last November that it would reduce output by 1.2 million bpd, to 32.5 million bpd, for an initial six-month period starting in January to help reduce the world glut of oil that had built up over the past three years.

A group of 11 non-members, led by Russia, agreed to join the deal and cut by a total of nearly 600,000 bpd, with Russia pledging to cut by 300,000 bpd over the initial six months that started in January.

But Russia has been slow to make those cuts.

Russia’s output was 11.15 million bpd in March 2017, down just 60,000 bpd on the near-record average level for January and February. Russia’s average output in the fourth quarter last year was 11.3 million bpd and it would produce at an average below 11 million bpd in the first six months of the year if it were to meet its commitment.

Opec estimates that it produced at an average 11.19 million bpd in the first quarter and forecast it would produce at 10.97 million bpd in the second quarter and then raise production in the second half of the year, with state-controlled companies Rosneft, Gazprom Neft, Tatneft and Bashneft increasingly adding new output streams.

Yesterday, Russia’s energy minister, Alexander Novak, reiterated his country’s intention to meet its commitment by cutting deeper this month. “Our plans do not change,” he said in Moscow. “By the end of the month [April] we will reach 300,000 barrels [per day cuts], during May-June we will maintain this level within the parameters that were agreed upon when the agreement was concluded,” said the Russian energy minister Alexander Novak.

Within Opec, Saudi Arabia has cut by more than its commitment to ensure near full compliance. Last month, it produced 9.9 million bpd, down about 40,000 bpd from the previous month and well below its pledge to produce at just above 10 million bpd. After February’s fracas, when Saudi Arabia’s energy ministry reported an output level to Opec that appeared to show a jump in production, the ministry reported output for March that was exactly in line with that from secondary sources, which is a group of consultants, analysts and news polls that try to guess output from data such as oil tankers at sea.

While the self-reported data from oil producers is widely discarded by market participants because of its variability, the Opec report is watched for signals from its key members.

The latest report held few surprises, although there is a passage that dryly notes the discrepancy between the secondary sources estimate of Russian output and the official number.

For now, the deal is being held together by the over-compliance of Opec, says Jean-Michel Saliba, a regional strategist at Bank of America Merrill Lynch. “Compliance is strong and appears to be improving,” he said, although noting that key players have yet to give a clear indication of whether it is likely to be continued after June.

“A renewal would require participation from non-Opec countries, signs that the inventory correction is taking course and some assurance that the shale oil production rebound [in the US] would remain contained,” he added.

Opec said in its report that it expects non-Opec output as a whole to rise by 580,000 bpd this year after declining last year by 690,000 bpd to 57.32 million bpd, with almost all of this year’s net rise attributable to rising US shale output.

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