Opec-plus-oil deal wobbles as Saudi exceeds output cut goals

18 February, 2019 12:00 AM printer

RIYADH: Saudi Arabia is bearing a greater burden for production cuts, while Russia is nowhere near the reductions it promised. That arrangement can’t last.

I know a little bit about standing on one leg; my daughter has encouraged me to learn to water ski. It’s not easy at my age, in England, in winter. OK, I’m actually on two legs, but they are on one ski. I tend to wobble a lot and to fall over much more than I would like. It sort of reminds me of the current state of the OPEC+ oil deal that was updated in December. That is also standing on a single leg and starting to look a bit shaky, report agencies.

The deal had two main pillars (let’s call them legs) to hold the whole thing up. They were Saudi Arabia and Russia, the leaders, at least in volume terms, of the groups of countries that were party to the production deal. They agreed to take the biggest share of each group’s pledged output cuts — Saudi Arabia shouldering 40 percent of the OPEC burden and Russia assuming 60 percent of the non-OPEC contribution.

With the first month’s data now published, it is clear that, while one leg is functioning strongly, the other is bearing little of the weight of the deal – and that could spell trouble for the future.

Saudi Arabia cut even more than it promised in January, reducing its output to 10.213 million barrels a day, according to the secondary source data that OPEC uses to monitor its members’ compliance. That compares with a target of just over 10.3 million. To be fair, the country’s Energy Minister, Khalid Al-Falih, said at the time of the agreement that the kingdom would exceed its goal, so the report doesn’t come as a big surprise.

Saudi Arabia's planned output cut will leave production in March at its lowest in more than four years, while Russia's remains near its record high

What was a shock, though, was a more recent comment that Saudi Arabia would go even further next month and slash production to 9.8 million barrels day. That would take it to its lowest level since February 2015.

Russia’s performance has been rather different. Oil Minister Alexander Novak said at the time of the deal that the country’s promised 230,000 barrel a day cut would be implemented smoothly over the first quarter, with January’s output 50,000-60,000 barrels below the October baseline. It didn’t even manage to reach that modest target – the cut was just 42,000 barrels, according to Bloomberg calculations.

Russia’s slowness in implementing its cut earned it public criticism from the Saudi oil minister and prompted a statement from OPEC Secretary-General Mohammad Barkindo urging all countries to achieve their obligations “in full and in timely fashion.”