Saudis Focus on Oil-Export Curbs as Libya, Nigeria Pump More

LAGOS (Capital Markets in Africa) – Saudi Arabia promised deep cuts to crude exports next month, emphasizing its commitment to eliminating a global supply glut even as fellow OPEC members Libya and Nigeria were told they are free to keep increasing output.

Shipments from the Organization of Petroleum Exporting Countries’ largest producer will be capped at 6.6 million barrels a day in August, 1 million lower than a year earlier, Saudi Arabia’s Energy and Industry Minister Khalid Al-Fali said on Monday. The kingdom won’t act alone to balance the market and other nations should improve their implementation of supply cuts, he said after meeting fellow producers in St. Petersburg, Russia.

At the same time Nigeria and Libya — both granted exemptions from the supply deal last year — are allowed to keep boosting output to their desired levels, Al-Falih said.

Saudi Arabia Energy Minister Khalid Al-Falih speaks after a meeting in St. Petersburg, Russia.

“We remain supportive of our brothers and partners” in the two African countries as they recover from output disruptions, Al-Falih said. “The committee however should monitor the impact of such growth in supply on global supply-demand balances.”

The prospect of one set of producers curbing production and exports while another group ramps up reflects the contradiction at the heart of last year’s historic agreement between OPEC and allies including Russia. While laggards like Iraq come under increased pressure to fulfil their pledged cuts, Libya and Nigeria were free to add 440,000 barrels a day of supply from May to June, prolonging the glut.

Libya is allowed to keep increasing and plans to raise output as high as 1.25 million barrels a day, Al-Falih said. Nigeria is ready to accept a cap if production rises to 1.8 million barrels a day, said Oman’s Minister of Oil and Gas Mohammed Al Rumhy. Reaching those levels would add another half a million barrels a day, according to data compiled by Bloomberg.

Risky Wager
Oil slumped into a bear market last month with prices only about $2 higher than when the cuts were agreed on last year. U.S. West Texas Intermediate futures in New York were up 0.6 percent at $46.60 a barrel at 12:24 p.m. Singapore time. Brent crude, the benchmark for more than half the world’s oil, was 0.5 percent higher at $48.84 in London.

Beyond the renewed focus on exports, the St. Petersburg meeting made no changes to the supply deal to correct that underwhelming performance. The group is still betting that rising demand will help to rapidly deplete fuel stockpiles and buoy prices in the second half.

That could prove to be a risky wager, even with OPEC estimating that global oil consumption will be almost 2 million barrels a day higher on average in the second half of the year compared with the first six months. Rising supply inside and outside the group suggests the cuts won’t put a significant dent in bloated global inventories by the time the agreement expires in March.

When OPEC holds its next full ministerial meeting in November, it may need to discuss extending the supply curbs further, United Arab Emirates Minister of Energy Suhail Al Mazrouei said in an interview with Bloomberg television on Monday. The price recovery might drag on into the second half of 2018, he said.

Monitoring Exports
In the near term, a greater focus on limiting exports makes sense, said Amrita Sen, Chief Oil Market Analyst at consultant Energy Aspects Limited.

“Where OPEC has made a mistake so far this year is that they cut production, but didn’t cut exports by as much,” said Sen. That meant producers were running down their own stockpiles, but having a lesser impact on their customers’ inventories. “From the market’s point of view, the only thing they care about is exports.”

The Saudi minister pushed to improve implementation of the production cuts from the nations already participating in the deal. Compliance dropped to 92 percent in June from 110 percent in May, according to people familiar withOPEC’s internal data. Iraq made just 28 percent of its pledged cuts.

“Some countries continue to lag” in their compliance “which is a concern we must address head on,” Al-Falih said. “Exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data in our monitoring.”

The Joint Technical Committee — officials from Algeria, Kuwait, Venezuela, Oman and Russia who already monitor compliance with the cuts — will now also study data on exports, he said.


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