Confidence from OPEC’s November production deal buoyed oil markets through the end of 2016. Now that 2017 has arrived, the oil market is showing signs of waning optimism.
In order to keep the price of oil from falling back to 2016 levels, OPEC will need to show actual production cuts. Historically, however, most OPEC countries have cheated on quotas and overproduced far more often then they have complied.
Here is a look at who’s cutting and who’s not (so far):
Saudi Arabia: OPEC’s largest oil producer committed to cut 486,000 bpd and is gradually following through with its commitment. Aramco is reported to have approached customers about reducing oil supply anywhere from 3% to 7%. However, the actual cuts will likely occur in February, according to Aramco. The February reductions may be followed by additional cuts.
Kuwait: This Gulf producer committed to cutting 131,000 bpd and claims to have cut 130,000 bpd already. Kuwait has been anxious to reduce production in one of its large oil fields for some time, so OPEC’s agreement comes at an opportune moment for Kuwait to conduct needed maintenance there.
UAE: Similarly, the UAE, which committed to reducing 139,000 bpd, has now scheduled field maintenance to coincide with its commitment to reduce production. The production cuts associated with these projects are scheduled for April and May.
Qatar: Qatar is only required to cut 30,000 bpd, but it began informing its customers in December that it would reduce its supply of oil starting January 1.
Iraq: As OPEC’s second largest producer, Iraq is committed to reducing its oil production by 210,000 bpd. However, much of Iraq’s oil production is contracted out to the Kurdistan Regional Government and to various IOCs (international oil companies). It is proving extremely difficult to convince the Kurds to cut production. Furthermore, contracts with IOCs would require Iraq to compensate the companies for lost revenue when they cut production. The government in Baghdad is still trying to work out the situation and has not yet implemented any reductions in supply. In fact, reports are that production from Kurdish oil fields is increasing, further compounding Baghdad’s problem.
Venezuela: Despite its incredible oil resources, Venezuela has barely been producing 2 million bpd. Its government is so eager for higher prices that it agreed to cut production by 95,000 bpd and declared before the new year that its state run oil company, PDVSA, would immediately reduce “the volumes of its main crude sales contracts” starting January 1.
Angola: This African country committed to cutting 80,000 bpd of its 1.7 million bpd production. In a statement issued January 1, the state oil company announced that it already reduced production by 78,000 bpd.
Ecuador: This south American country only produces about 548,000 bpd but committed to reducing that output by 26,000 bpd. It has not yet issued any statements on compliance.
Algeria: The Algerian energy minister played an integral role in the behind-the-scenes diplomacy that helped OPEC members reach a consensus. Almost immediately after the November OPEC meeting, he instructed Algeria’s oil industry to prepare to reduce production by the 50,000 bpd he agreed to cut.
Gabon: This small African producer has faced falling oil production all year, headlined by a large-scale strike by oil workers in October. It produces only about 202,000 bpd and is committed to reducing 9,000 bpd under the OPEC agreement. Gabon has yet to issue any compliance statement.
Iran: The Islamic Republic of Iran received special consideration, permitting the country to increase its oil production up to 3.975 million bpd as long as its average production between January and the end of May comes out to 3.797 million bpd. Determining Iran’s compliance with this unusual quota will be extremely difficult. Iran has been taking advantage of this breathing room to sell off significant amounts of the stored oil it has held on tankers in the Persian Gulf, which has made determining its actual production rates challenging.
Nigeria and Libya: These countries are exempt from any production cuts, as their oil production has been severely compromised by terrorist activity.
In part two of this article, Non-OPEC Producers Could Hold Key To Successful 2017 Cuts, we look at non-OPEC members’ commitments to reduce oil production and their compliance so far.