OPEC output hits new low on Trump’s sanctions, supply pact

Saudi Arabia's Oil Minister Khalid Al-Falih talks to journalists at the beginning of an OPEC meeting in Vienna, Austria, on July 1, 2019. (REUTERS/File Photo)
Updated 06 July 2019

OPEC output hits new low on Trump’s sanctions, supply pact

  • Saudi Arabia is still voluntarily pumping less than an OPEC-led supply deal allows it to

LONDON: OPEC oil output sank to a new five-year low in June as a rise in Saudi supply did not offset losses in Iran and Venezuela due to US sanctions and other outages elsewhere in the group, a Reuters survey found.

OPEC pumped 29.60 million barrels per day (bpd) last month, the survey showed, down 170,000 bpd from May’s revised figure and the lowest OPEC total since 2014, the survey showed.

The Reuters survey suggests that even though Saudi Arabia is raising output following pressure from US President Donald Trump to bring down prices, the Kingdom is still voluntarily pumping less than an OPEC-led supply deal allows it to. OPEC renewed the supply pact at meetings this week.

Despite lower supplies, crude oil has fallen from a six-month high above $75 a barrel in April to below $63 on Friday, pressured by concern about slowing economic growth. “The decision of OPEC+ at the beginning of the week to extend its production cuts has done nothing to change this,” Carsten Fritsch, analyst at Commerzbank, said of this week’s drop in prices. “A series of disappointing economic data from the United States, China and Europe has sparked new concerns about demand.”

OPEC, Russia and other non-members, known as OPEC+, agreed in December to reduce supply by 1.2 million bpd from Jan. 1 this year. OPEC’s share of the cut is 800,000 bpd, to be delivered by 11 members — all except Iran, Libya and Venezuela. The producers at meetings this week in Vienna extended the deal until March 2020.

In June, OPEC members bound by the agreement achieved 156 percent of pledged cuts, the survey found, more than in May, due to lower production in Iraq, Kuwait and Angola. All three of the exempt producers also pumped less oil.

The US reimposed sanctions on Iran in November after pulling out of a 2015 nuclear accord between Tehran and six world powers. Aiming to cut Iran’s sales to zero, Washington this month ended sanctions waivers for importers of Iranian oil.

Iran’s crude exports have declined to less than 400,000 bpd from more than 2.5 million bpd in April 2018.

In Venezuela, supply fell slightly in June due to the impact of US sanctions on state oil company PDVSA and a long-term decline in production, according to the survey.

Among countries pumping more, Saudi Arabia boosted supply by 100,000 bpd to 9.8 million bpd from May’s revised figure, the survey found. This is still below its OPEC quota of 10.311 bpd.

Output also rose in Nigeria, which last month overproduced its target by the largest margin.

June output was the lowest by OPEC since April 2014, excluding membership changes that have taken place since then, Reuters surveys show.

The Reuters survey aims to track supply to the market and is based on shipping data provided by external sources, Refinitiv Eikon flows data and information provided by sources at oil companies, OPEC and consulting firms. 


Saudi defense contractor to invest up to $16 million to further localize services

Updated 18 November 2019

Saudi defense contractor to invest up to $16 million to further localize services

DUBAI: Saudi-based defense contractor Middle East Propulsion Company (MEPC) plans to invest between $13 million and $16 million over the next two years to build test cells for aircraft engines and establish new production lines.
These expansion activities should complement the company’s objective to localize high-tech repairs and combine them in one roof for the Saudi defense ministry, which is a major customer, CEO Abdullah Al-Omari told Arab News.
Instead of sending aircraft engines and engines modules overseas for further servicing, thus take up more time before military assets return to actual service, localization not only cuts the turn-around period but also reduces Saudi government spending for the repairs.
“We have accomplished more than 1,600 engine and engine modules [since 2001, they] have been maintained totally in Saudi Arabia,” Al-Omari said at the sidelines of the Dubai Airshow. “The engines consume 45 percent of what you spend on aircraft.”
The company works on 150 to 160 engines and engine modules every year.
MEPC is the first specialized MRO (maintenance, repair and overhaul) company operating in the Middle East, according to its website. It has invested over $26 million during the previous two years for the localization of its MRO services.
“We used to send these parts to outside, it takes 6 months to 24 months sometimes … in case of the Apache engines, minimum turn around is 24 months,” Al-Omari said, but their localization efforts have greatly improved their capability by cutting the turn-around period to only 150 days.
The speed at which MEPC is able to repair engines and modules, boosts the readiness of Saudi military, Al-Omari added.
The company is in talks with major defense contractors, including Honeywell for the Abrams talks and GE T700 engines, for possible tie-ups to further improve their capability, he said.
“Currently there is a potential with the Kuwait army to provide them with similar services [being delivered to the Saudi defense ministry],” Al-Omari said, and expects that cooperation would start “within the next two years or so.”