Page 7 - FSUOGM Week 26

FSUOGM COMMENTARY FSUOGM
OPEC. “Our position is very clear. I have no di culty with the extension of the cut or more cuts but my problem is with unilateralism. I have no di culty, I don’t want to block the cut,” Zan- ganeh said in Vienna. He added that he had no issues with working with Saudi Arabia, but that the united authority was threatened by Saudi having so much say.
Meanwhile, he noted that Iran would approve an extension to the output cut agreement whether it was for six or nine months. With Ira- nian output continuing to fall, the best Tehran can hope for is to maximise the value of each barrel of crude it does manage to sell, while try- ing to capitalise on its vastly improved domestic downstream sector.
Tensions and targets
Al-Falih, meanwhile, said that he saw no reason to make deeper cuts. According to the cartel’s lat- est monthly report, released in June, production by OPEC’s 14 members fell in May by 236,000 bpd to 29.876mn bpd, the lowest since February 2015.
Saudi Arabia, which has regularly taken on the bulk of output cuts, reduced production by just 76,000 bpd, from 9.766mn bpd to 9.690mn bpd over the same period. e largest cut was, however, involuntary, with Iranian output hav- ing fallen by 227,000 bpd to 2.370mn bpd as sanctions from the US take hold and tensions rise between the two.
Zanganeh was asked if Iran was still selling oil on international markets and replied: “o cially nothing”, with covert sales understood to be con- tinuing to Chinese clients as well as quantities piped and trucked into neighbouring countries, particularly Iraq.
Having been included in the DoC’s obli- gations, Iraq was required to reduce output by around 140,000 bpd from the October levels used as each country’s benchmark, implying a ceiling of 4.51mn bpd.
In March, it nally came close to compliance,
with production decreasing by 126,000 bpd to 4.522mn bpd. However, with elds and export facilities known to have been forced o ine by bad weather, this appeared to be more by coinci- dence than an e ort to reduce output.
These suspicions have since been proved accurate, with production having expanded to 4.630mn bpd in April and up another 94,000 bpd to 4.724mn bpd in May.
Inside Russia, oil companies are divided over the cuts. Vagit Alekperov, the CEO of Rus- sia’s second-largest producer Lukoil, warned as recently as June 20 that there was still no con- sensus among the country’s oil majors about whether the deal should be extended. However, he said his company backed the extension, pro- vided there was some exibility based on market needs.
State-owned Gazprom Ne has also voiced support, along with several smaller rms includ- ing Safmar and Tatne .
e notable exception is Russia’s largest oil producer Rosne , whose powerful head Igor Sechin has railed against co-operation with OPEC for much of the last year, arguing that the output agreement does little more than hand market share over to US shale producers. Sechin’s opposition has stoked concerns that Rosne may not comply with the deal.
Under the OPEC+ deal, Russia is required to maintain its production at no more than 11.17- 11.18mn bpd – or 228,000 bpd less than the level achieved in October last year. Rosne and others failed to keep to this commitment during the rst four months of 2019, with production only dipping below the agreed threshold in May, averaging 11.11mn bpd compared with 11.23mn bpd in April.
This decline was the result of major dis- ruptions at the Druzhba oil pipeline, rather than efforts by producers to keep output in check. With operations at Druzhba now largely restored, all eyes are on Russia to see if it is sin- cere about supporting the now extended deal.™
Week 26 03•July•2019 w w w . N E W S B A S E . c o m P7