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OPEC+ crude oil output makes biggest gain in five months, but gap with quotas grows: Platts survey

Highlights

OPEC and allies pump 42.58 mil b/d in July, up 490,000 b/d

Shortfall with production quotas increases to 2.80 million b/d

Middle East posts steady rises but African members struggle

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OPEC and its nine allies posted their highest monthly crude oil production rise in five months in July, led by gains in Saudi Arabia and Kazakhstan, the latest Platts survey by S&P Global Commodity Insights showed.

The OPEC+ alliance hiked output by a hefty 490,000 b/d from June—although that is still short of the 648,000 b/d promised when the group agreed to accelerate their quota increases for July and August to help meet rising demand.

OPEC produced 29.08 million b/d, up 250,000 b/d from June, as almost all of its Middle Eastern members posted steady gains. Meanwhile, OPEC's nine allies averaged 13.50 million b/d, a rise of 240,000 b/d, boosted by a recovery in Kazakh and Russian output.

As a whole, the entire OPEC+ coalition pumped 42.58 million b/d, its most since March, the month after Russia invaded Ukraine.

But with many members struggling to even maintain output, the gap between OPEC+ production and its quotas grew to 2.80 million b/d—more than what Kuwait, the alliance's fifth biggest member, pumped in July.

As a result, quota compliance ballooned to a record high of 222.9% in the month, according to S&P Global calculations.

More than half of OPEC+ members have seen their production hit by sanctions, geopolitical instability, unplanned outages, scheduled maintenance, and technical issues.

Gulf members lead

Saudi Arabia and the UAE, who together hold virtually all of the world's spare production capacity, added a total of 280,000 b/d to the market in July, the survey found.

Saudi Arabia boosted output by 220,000 b/d, supported by a significant rise in exports along with an increase in summer crude burn for power generation.

The OPEC kingpin pumped 10.77 million b/d, its highest in more than two years, but this was still slightly short of its July quota of 10.83 million b/d.

UAE, which is now OPEC's third-largest oil producer, increased output to 3.14 million b/d, a 60,000 b/d monthly rise. Meanwhile, Iraq and Kuwait added 70,000 b/d and 50,000 b/d, respectively, in July.

The group's African members, however, collectively fell severely short of their quotas last month, continuing a longstanding trend. Nigeria and Angola, the two biggest producers in the continent, were 569,000 b/d and 332,000 b/d below their July targets, the survey found.

Nigeria has had to deal with a barrage of security, operational, and technical problems at its key oil infrastructure since last year, while Angolan production is also facing technical issues, aggravated by a lack of upstream investment and incentives.

Kazakhstan, Russia recover

Russia's output recovery continued, albeit at a slower pace. The sanctions-hit country pumped 9.80 million b/d in July compared to 9.75 million b/d in June and 9.29 million b/d in May, the survey showed.

The July figure is still more than 300,000 b/d short of pre-invasion levels, as western sanctions have hampered its wellhead production. Crude exports fell steadily in July, survey panelists said, but Russian refining runs were up sharply on robust domestic demand.

Fellow non-OPEC producer Kazakhstan saw its output rebound to 1.39 million b/d, an increase of 170,000 b/d from June. Kazakhstan's second biggest oil field, Kashagan, was offline for only half of the month because of major planned maintenance that began in May.

The Central Asian country could see further disruptions this month, as production from its highest producing crude oil field, Tengiz, will be reduced because of planned maintenance. A gas leak at a processing plant at Kashagan was also reported in early August, according to the North Caspian Operating Co.

Meanwhile, Libya, which is exempt from an OPEC+ quota due to its internal instability, kept output flat in July at 650,000 b/d as the producer managed to resolve its oil blockades and shutdowns by mid-month.

Production is now hovering above 1 million b/d after a force majeure at its major oil terminals and fields was lifted. New management took over at state-owned National Oil Corp. July 14, after its long-serving chairman, Mustafa Sanalla, was sacked and replaced by ex-central bank governor Farhat Bengdara.

Thin cushion

The overall OPEC+ production increase was a welcome supply boost to a global economy suffering from sky-high inflation, with a potential recession looming in the months ahead.

August will see the alliance hike quotas by another 648,000 b/d although, as with July, how much of the increase can be fulfilled remains a major question.

Amid this backdrop, OPEC+ agreed at its Aug. 3 meeting to raise September quotas by only 100,000 b/d over August, with officials citing concerns over coronavirus cases and other economic headwinds, along with an expected seasonal easing of demand.

Platts Analytics said this "modest" increase underscores the minimal level of global spare capacity.

"OPEC+ quota hikes will reduce spare capacity to 1 million b/d in September, less than 400,000 b/d of which is sustainable for more than a quarter," said Paul Sheldon, chief geopolitical adviser at Platts Analytics.

OPEC+ ministers will next meet Sept. 5 to decide on October production targets.

The survey figures, which measure wellhead production, are compiled using information from oil industry officials, traders, and analysts, as well as reviewing proprietary shipping, satellite, and inventory data.

Click here to read the previous survey: OPEC+ boosts June crude output by 390,000 b/d, but wide quota gap persists