OPEC+ members that exceeded their production quotas will have to cut an extra 2.31 million b/d as compensation by the end of September, the alliance's data shows, keeping a lid on output as compliant members are allowed to ease back from historic output restraints.
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Register NowUnder the OPEC+ supply accord, any production over quotas in May, June and July must be offset by deeper cuts of equivalent volume in August and September.
The coalition has not revealed how members will implement those additional cuts as countries have until Aug. 28 to submit their plans. A key monitoring committee co-chaired by Saudi Arabia and Russia met online Aug. 19, exhorting all members to adhere to their commitments to speed the market's rebalancing from the COVID-19 collapse.
Iraq had the biggest excess at 851,000 b/d over the three months, while Nigeria was over its cap by 315,000 b/d, according to OPEC+ data outlined in an internal report seen by S&P Global Platts.
Russia was noncompliant by 283,000 b/d, followed by Kazakhstan at 189,000 b/d.
Saudi Arabia, Kuwait, Algeria, Oman, Malaysia and Bahrain all came in under their quotas during the three months and do not have to make any compensation cuts, the report shows.
The OPEC+ alliance in May implemented the largest coordinated production cut in the oil market's history at 9.7 million b/d – about 10% of pre-pandemic demand.
Prices have stabilized around $45/b in recent weeks, and the coalition has eased its cuts to 7.7 million b/d from August through the end of the year, in anticipation of higher demand. Adding the compensation cuts to that and distributing them equally across August and September would bring the cuts to about 8.85 million b/d for those two months.
Targeting stocks
Full compliance with the deal, including the compensation cuts, would cause global oil stocks to draw by 499 million barrels in the fourth quarter to reach 33 million barrels below the five-year average that the OPEC+ coalition has said it is targeting, according to OPEC+ analysis in the report. The analysis, prepared for the monitoring committee, assumed Iran, Libya and Venezuela, which are exempt from quotas, maintain production at their July levels.
However, the committee also reviewed a more bearish market scenario with a second wave of COVID-19 infections that would cause global oil demand to contract by 11.2 million b/d in 2020. Full OPEC+ compliance would result in stocks remaining 233 million barrels above the five-year average in the fourth quarter.
"While there are some signs of gradually improving market conditions, including the inventory build in July 2020 being reversed and the lessening of the gap between global oil demand and supply, nevertheless, the pace of recovery appeared to be slower than anticipated, with growing risks of a prolonged wave of COVID-19," it was stated in the report.
The committee, tasked with adjudicating compliance and monitoring market conditions, is scheduled to next meet online Sept. 17, while the full OPEC+ coalition is scheduled to meet in Vienna Nov. 30-Dec. 1.
Compensation cuts
Unit: million b/d
Source: OPEC+ document