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Opec members produced 23.25mn b/d in July — up by 970,000 b/d from a 28-year-low in June, when Saudi Arabia, Kuwait and the UAE all delivered cuts in excess of their commitments under the Opec+ output restraint deal. The end of those voluntary reductions drove last month’s increase.
July marked the first month-on-month rise in Opec output since April, when some members of the wider Opec+ coalition embarked on a short-lived battle for market share following the group’s failure to broker a new production deal. An historic two-year output pact was later agreed and came into force in May. Opec output during the first phase of the deal in May-July was 6mn b/d lower than the same period last year. The deal’s second phase, which will see overall Opec+ cuts relaxed by around 2mn b/d, runs from August to December.
The Opec+ group has tweaked its two-year deal once already and remains open to further adjustments should market conditions warrant it. “The moment we see serious lockdowns, or any serious situations that need revisiting of our decisions, we are more than equipped to hold a conference the next day, the next evening, to decide on anything that is required,” Saudi oil minister Abdulaziz bin Salman said last month.
The recovery in oil demand could be scuppered by a second wave of Covid-19 lockdowns. But the market is unlikely to get all of the additional 2mn b/d of Opec+ supply this month, as member countries that exceeded their quotas in May and June are obliged to compensate with extra cuts in July-September. Iraq’s oil ministry said today said it aims to produce 400,000 b/d under its new 3.8mn b/d quota in August, to make up for its poor compliance record since May.
Much of the increase in Opec+ output this month will be absorbed domestically anyway, according to the Saudi oil minister. Mideast Gulf producers need to burn more crude for power generation during the summer, and Saudi Arabia will need to replenish its crude stocks after voluntarily producing below its quota in June, according to market participants. Argus tracking data show that Saudi crude exports were little changed at just under 5.6mn b/d for the second consecutive month in July — excluding loadings from the Neutral Zone that Riyadh shares with neighbouring Kuwait. The Neutral Zone’s 300,000 b/d offshore Khafji field and 250,000 b/d onshore Wafra field both resumed commercial output last month.