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OPEC: Reality check, waiting for Russia to back deal

Reuters/Leonhard Foeger

Russia fears extension through 2018 will only help U.S. shale. Market expects 9 months; anything less ‘notably bearish': RBC

By Alex Devine

LONDON
Petroleumworld 11 29 17

While OPEC is said to have reached a consensus on the need to extend oil-supply cuts to the end of 2018 when producers meet in Vienna on Thursday, Russia, its chief ally, is so far dragging its feet.

Almost a year into the historic supply agreement, the deal is working. Oil in New York is trading near a two-year high after the curbs helped drain a global glut that has weighed on prices for three years. 

Russia and the Organization of Petroleum Exporting Countries are said to have crafted the outline of a deal to continue their curbs for nine months beyond the current end-March expiry. But Moscow is concerned that supporting oil prices above $60 a barrel will only abet the resurgent U.S. shale rivals most to blame for the glut.

The market has already factored in a renewal, and anything short of an extension through 2018 “would likely be notably bearish ,” RBC Capital Markets has said.

Following are the latest positions of most OPEC members, plus Russia and Kazakhstan. The respective shares of supply are based on October levels. Estimates for the price each member needs to balance its 2017 budget are from the International Monetary Fund unless stated otherwise. The compliance rate with each nation's pledged production cut is the average through October, as compiled by Bloomberg.

Algeria

  • Price needed: $63.80
  • Compliance: 76%
  • Share of OPEC production: 3.1%

Political instability wrought by the oil-price collapse has been exacerbated by a decline in production to the lowest in more than a decade. The country is still counting on the supply pact to succeed and an extension is “desirable and probable,” state oil company chief Abdelmoumen Ould Kaddour told the Wall Street Journal last month.

Angola

  • Price needed: $83 (RBC)
  • Compliance: 133%
  • Share of OPEC production: 5.3%

Angola has been one of the most dedicated participants, reducing more than it pledged in each month since the curbs took effect. Prior to her ouster this month, Isabel Dos Santos, the chairwoman of the state oil company, said the country would favor an extension if everyone else is on board.

Ecuador

  • Price needed: $78 (RBC)
  • Compliance: 63%
  • Share of OPEC production: 1.6%

OPEC's recalcitrant minnow set a dangerous example in July when it publicly announced it would boost production -- effectively quitting the deal. Later it pleaded for an exemption instead, arguing it needed money to plug a budget deficit. Recently, Ecuador changed its tune, promising to meet its target and support whatever the majority decides at the meeting.

Iran

  • Price needed: $54.70
  • Compliance: not required to cut
  • Share of OPEC production: 11.6%

Since international sanctions were eased in January 2016, production has risen close to the 3.797 million-barrel-a-day cap Iran agreed on with OPEC as part of the accord. U.S. President Donald Trump later threatened to ditch the nuclear agreement that lifted the trade restrictions. Iran said last month that Trump's “ chest-beating ” won't disrupt its output plans. It supports an extension of the supply deal until the end of next year.

Iraq

  • Price needed: $54.10
  • Compliance: 54%
  • Share of OPEC production: 13.4%

Iraq consistently exceeded its quota until clashes with the semi-autonomous Kurdish region disrupted oil fields in the disputed Kirkuk province last month. Oil Minister Jabbar Al-Luaibi has backed a nine-month extension , saying his country is committed to meeting its quota, but the recent production decline may mask the long-term ambition of a country that, from the outset, resisted the imposition of curbs.

Kazakhstan

  • Price needed: $60.60
  • Compliance: -99%

The former Soviet republic actually increased production since the agreement with OPEC and will seek an exemption for output at its new Kashagan field if the cuts are extended. Production from the giant project is likely to rise to 250,000 barrels a day by year-end, Energy Minister Kanat Bozumbayev told Interfax this month, trimming an earlier forecast.

Kuwait

  • Price needed: $46.50
  • Compliance: 99%
  • Share of OPEC production: 8.4%

The fifth-largest OPEC producer and a member of the committee that oversees the accord believes the decision to extend should be made closer to expiry, people familiar with the matter said this month.

Libya

  • Price needed: $102.00
  • Compliance: not required to cut
  • Share of OPEC production: 3%

The OPEC nation with Africa's largest crude reserves has been exempted from the curbs as it struggles to restore output crippled by war. Libya is now pumping almost 1 million barrels a day, but it's “very difficult” to say when it could increase to 1.25 million barrels, National Oil Corp. Chairman Mustafa Sanalla said last month. That's a target Libya gave to fellow producers at a meeting in July.

Nigeria

  • Price needed: $127 (RBC)
  • Compliance: not required to cut
  • Share of OPEC production: 5.3%

Nigeria was exempted from the cuts as it restores production lost to rebel attacks. Together with Libya, its rising output has undermined other members' efforts. The country promised to join the curbs after six months of calm, a prospect made more remote after Niger Delta militants ended a cease-fire this month. The country supports an extension, Minister of State for Petroleum Emmanuel Ibe Kachikwu said last month. 


Qatar

  • Price needed: $46.80
  • Compliance: 130%
  • Share of OPEC production: 1.8%

So far, a diplomatic rift between Qatar and OPEC members Saudi Arabia and the United Arab Emirates doesn't seem to have shaken its support for the production deal. Qatar has the second-highest rate of compliance in the bloc after Saudi Arabia, and has said it will support an extension if other producers agree.

Russia

  • Price needed: $49.90 (Figure used to calculate country's 2017 budget)
  • Compliance: 81%

While Russia is said to have worked out the outline of a plan for a nine-month renewal with OPEC, the world's biggest energy exporter is still concerned about the impact of higher prices on U.S. shale production. It previously wavered on the length of any extension to oil cuts and favored deferring any decision until closer to the expiry of the current accord. Still, an agreement is likely, according to Bloomberg oil strategist Julian Lee, since producers risk falling prices if cracks appear in their resolve, while President Vladimir Putin won't want to risk the political gains he's made in the Middle East since joining the pact.

Saudi Arabia

  • Price needed: $73.10
  • Compliance: 122%
  • Share of OPEC production: 30.7%

OPEC's strong compliance has often been attributable to the Saudis cutting more than they promised, making up for laggards like Iraq and the U.A.E. While bearing the heaviest burden, the Kingdom has still gained from the deal. Oil revenue grew 33 percent in the first nine months of the year, allowing the government to soothe potential discontent by reinstating the perks and bonuses to citizens that it controversially withdrew last year. Energy Minister Khalid Al-Falih told Bloomberg Television this month the group should announce an extension in Vienna because surplus inventories won't be eliminated by March.

United Arab Emirates

  • Price needed: $68
  • Compliance: 67%
  • Share of OPEC production: 8.9%

The Saudi ally has exceeded its quota in each month of the deal, but it promised in July to lift its game after Saudi Arabia rebuked OPEC members for failing to meet their commitments. Energy Minister Suhail Al Mazrouei has said his country supports an extension, but deeper cuts aren't under consideration.

Venezuela

  • Price needed: $216 (RBC)
  • Share of OPEC production: 6%
  • Compliance: 122%

Venezuela will be represented at the Vienna summit by new Oil Minister Manuel Quevedo, a military leader who was named to the post at the weekend, replacing Eulogio Del Pino. Perhaps more than any other OPEC nation, Venezuela needs the OPEC deal to work. The Latin American country gets almost all its export revenue from oil, and the price collapse left its economy reeling and its industry in decline. Production in the country, which has larger reserves than Saudi Arabia, is set to reach the lowest in almost three decades -- just when it needs petrodollars most to service its debt. Quevedo will also head the national oil company, whose former president, Nelson Martinez, said he supported the proposal to extend cuts for nine more months.


Story by Alex Devine; With assistance by Angelina Rascouet Bloomberg.

bloomberg.com
/ 11 28 2017

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