Exemptions to have little bearing on oil cuts impact
The cooperation between OPEC’s 15 members and a group of non-OPEC nations led by Russia, known as OPEC+, is set to enter its third year after an agreement was reached in Vienna last week.
Global oil markets were refreshed after OPEC+ reached the agreement for an output cut of 1.2 million barrels per day beginning in January.
Iran, Libya and Venezuela were exempted from the cuts — but that won’t make an impact on the output ceiling. These nations already have logistical, financial and diplomatic constraints on their production and cannot reach their OPEC targets as they stand. Iran, for example, is struggling in the midst of the sanctions dilemma, with many of its customers buying crude oil elsewhere, and its output is likely to fall further.
In November, Iran’s oil output fell to below 3 million barrels per day (bpd) despite eight national waivers to US sanctions.
Iran’s exports are expected to be around 1.1 million to 1.3 million bpd for the duration of the US sanctions. Its budget for the next fiscal year, beginning March 21, assumes exports of 1.5 million bpd. So it should be expected that Iran will work hard on barter deals to bridge the gap.
Qatar’s announcement to withdraw from OPEC, effective Jan. 1, won’t impact the OPEC+ agreement as Doha’s focus is on natural gas and it produces only around 600,000 barrels of crude per day. Qatar’s departure is not of any significance for the operations or effectiveness of OPEC as an international organization. OPEC+ will be closely monitoring the impact of the supply levels on the oil market and will review market data in April 2019.
It is unclear yet if Saudi Arabia will be shouldering most of the output cuts, while Russia will cut 230,000 barrels per day out of the 400,000 barrels agreed to among the non-OPEC producers.
- Faisal Mrza is an energy and oil marketing adviser. He was formerly with the OPEC and Saudi Aramco. Twitter:@faisalmrza