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OPEC's Feb crude output at close to 11-year low, deeper cuts loom

Highlights

Feb production falls by 540,000 b/d to 27.99 mil b/d

Libya pumps lowest since Sep 2011 as blockade persists

Saudi output at 9.69 mil b/d, at five-month low

113% output cut compliance for 10 members with quotas

London — OPEC's crude production in February tumbled to 27.99 million b/d, its lowest level since March 2009, according to the latest S&P Global Platts survey.

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Production fell by 540,000 b/d compared with January, mainly due to the involuntary cuts by Libya, whose output has been devastated by an oil blockade as the country's civil conflict intensifies.

The last time OPEC production was this low was almost 11 years ago, when the markets were still reeling from the global financial crisis. At the time, OPEC was in midst of a heavy cut of 2.2 million b/d to prop up prices driven lower by the global economic downturn.

Fast-forward to 2020 and the producer group finds itself in a similar situation.

OPEC production since 2008

This time, the global markets seem to be on the brink of a financial crisis, caused by the COVID-19 outbreak, which is threatening the global economic and oil demand outlook.

OPEC and its allies are immersed in talks to intensify its output cuts by a further 1.5 million b/d in to the second quarter of this year to offset the coronavirus' hit to global oil demand.

Libya crisis magnifies cuts

The 10 OPEC members that have quotas under the bloc's latest supply accord with Russia and other allies produced 24.91 million b/d in February, which is 240,000 b/d below their new collective ceiling of 25.15 million b/d that went into force in January.

This makes for a compliance rate of 113%, with Saudi Arabia and its Gulf allies bearing the main burden of the cuts, according to Platts calculations. In January, the compliance rate was much higher at 128%.

The agreement exempts Iran, Libya and Venezuela. The February total excludes Ecuador, which left the producer group effective January 1.

Libya's oil production collapsed to 140,000 b/d in February, lowest since September 2011 when it was in throes of a civil war that led to the downfall of Colonel Moammar Qadhafi.

Output slumped 630,000 b/d month on month, and the country's crude output has already dropped almost 90% since the self-styled Libyan National Army imposed a blockade on Libya's five export terminals in mid-January.

Most analysts expect Libyan supply disruptions to last for at least a few more weeks -- maybe months -- as a political agreement between the UN-backed Government of National Accord and the LNA looks unlikely.

Saudi output declines further

Saudi Arabia, pumped at a five-month low of 9.69 million b/d in February, according to the survey, as production fell by 50,000 b/d from the previous month.

Exports were up steadily, but this was due to maintenance at some of the kingdom's refineries, which meant there were more barrels for its customers.

Survey panellists noted a dip in the country's crude stockpiles, which also explains the rise in the kingdom's crude shipments.

Saudi Arabia is pushing very hard for the OPEC+ coalition to nearly double its output cuts, as it is very concerned the coronavirus outbreak will cause oil demand to shrink this year, bloating crude stocks.

Saudi Energy Minister Prince Abdulaziz bin Salman had pledged to hold the kingdom's output at around 9.74 million b/d in early 2020, as long as other members respect their quotas.

Old habits

But compliance issues from some members have continued under the new deal, with Iraq and Nigeria once again the main culprits.

Iraq, OPEC's second-largest producer, has managed to boost its oil production this year, despite having agreed to commit to a lower quota under the current agreement.

Iraqi output rose to a four-month high of 4.65 million b/d in February, with exports up at its southern terminals and also from the semi-autonomous Kurdish region. This is 190,000 b/d above its output quota of 4.46 million b/d.

Iraq has also rebuilt inventories at its southern crude storage tanks in the last few months, in case of possible disruptions at its key oil fields, as the country's political stalemate persists.

Similarly, Nigeria boosted its output by 40,000 b/d to average 1.88 million b/d, the survey found, as exports of its key grades such as Bonny Light and Escravos rebounded.

This is 130,000 b/d above its current quota of 1.75 million b/d. However, Nigeria's output is poised to fall, as its offshore 225,000 b/d Bonga field will be undergoing maintenance in March and April, according to terminal operator Shell.

Cash-strapped Venezuela managed to keep output stable at 820,000 b/d, according to the survey. However, Venezuela's production outlook is once again looking bleak. The US imposed sanctions on Rosneft Trading SA, the Geneva-based subsidiary of the Russian state oil company, for supporting Venezuela's oil sector by continuing to trade with state-owned PDVSA.

Sanctions on Rosneft affiliates could cause a historic, near-term decline in Venezuela's oil output, survey panellists said.

The Platts OPEC figures are compiled by surveying OPEC and oil industry officials, traders and analysts, as well as reviewing proprietary shipping and inventories data.

Notes: OPEC has agreed around a plan to cut a further 1 million b/d of its own crude oil production and to lobby Russia and the nine other non-OPEC partners to slash 500,000 b/d of their output for a total reduction of 1.5 million b/d through the second quarter. The OPEC/non-OPEC meeting is scheduled for March 6 in Vienna.

In December, OPEC and 10 non-OPEC partners agreed to deepen their production cut agreement to 1.7 million b/d through March 2020. The deal exempts Iran, Libya, and Venezuela.

Ecuador exited the group effective January 1.

The S&P Global Platts OPEC survey, which has been published since 1988, measures well-head crude oil production in each member country.