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OPEC+ hikes June output by 540,000 b/d amid higher demand for crude

Highlights

Saudi pumps at five-month high of 8.97 mil b/d

Russian output flat at 9.51 mil b/d

OPEC+ quota compliance dips to 110%

Iraq, Nigeria improve their compliance

OPEC and its allies added 540,000 b/d of crude in June to a market hungry for oil as summer kicked off, according to the latest S&P Global Platts survey.

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OPEC's 13 members pumped 26.19 million b/d in June, up 480,000 b/d from May, mostly due to Saudi Arabia's continued unwinding of its voluntary extra production cut. The group's nine non-OPEC partners, led by Russia, produced 13.27 million b/d, a rise of 60,000 b/d from May.

Despite the production gains, higher quotas for the month meant OPEC+ compliance was at 110.16% compared to 111.45% in May, the survey found.

The coalition has now added 970,000 b/d in the past two months, as parts of its plans to relax its output quotas to meet the growing demand for its oil.

But a bitter feud between emerging rivals Saudi Arabia and the UAE could put an end to that, with a deal to raise output by 2 million b/d between August to December in jeopardy. The dispute, which a week of negotiations has so far failed to resolve, could cause the OPEC+ alliance to leave quotas flat after July, potentially squeezing an already tightening market through the rest of the summer.

But it could also lead to sliding compliance, if not an outright price war, if the dispute escalates, some analysts say.

Ministerial talks are currently suspended, with the UAE not budging from its stance that its output target should be revised as a condition of continuing the OPEC+ supply management pact to the end of 2022 and Saudi Arabia insisting that the production rises and the extension remain tied together, according to delegates.

Saudi opens the taps

Saudi Arabia accounted for a massive chunk of the June increase, boosting output by 470,000 b/d, as it stepped up the unwinding of its extra 1 million b/d production cut.

The kingdom produced 8.97 million b/d in June, 377,000 b/d below its official quota of 9.347 million b/d. Crude exports were down slightly in June, but domestic refining runs and direct crude burn rose sharply due to seasonal demand, according to the survey.

Saudi Arabia has promised to further ratchet back its extra cut by a final tranche of 400,000 b/d in July, as it responds to stronger demand from its key oil buyers.

Take away the Saudi voluntary cut, and OPEC+ quota compliance would fall to 107.38%, according to Platts calculations.

Compliance laggards step up

Meanwhile, thanks to more generous quotas, compliance from key members such as Russia, Iraq and Nigeria improved.

The OPEC+ group's largest producer Russia tightened its compliance to 97% in June, its highest monthly compliance rate since February, the survey found.

Russian crude output averaged 9.51 million b/d in June, unchanged from the previous month, the survey showed. Despite an increase in crude exports, production remained steady as some of its oil pipelines were shut briefly for maintenance.

Iraq's compliance to its OPEC+ quotas, which have come under question in recent years, improved sharply, rising to 102%. June crude production fell to 3.94 million b/d on the back of lower exports and declining oil stocks.

Nigeria posted the heaviest drop in output in June, as Africa's largest oil producer faced significant operational issues.

It produced 1.48 million of crude in June, its lowest level since January, the survey found. Some of its large oil fields, especially those in the Niger Delta like Bonny, Escravos, Brass River and Qua Iboe, are pumping well below their full capacity due to either technical problems or maintenance.

Iran hits two-year high

The group's exempt members -- Iran, Libya and Venezuela -- added a combined 70,000 b/d in June.

Iran pumped 2.48 million b/d last month, an increase of 50,000 b/d from May and its highest production since April 2019.

But despite a steady recovery in its oil production, its exports remain subject to stringent US sanctions, and the OPEC member has built up a significant amount of oil on floating storage.

Iran's efforts to restore a nuclear deal with the US have still not borne fruit as talks have repeatedly hit a stalemate. With hardliner Ebrahim Raisi taking over as Iran's new president from August, deal negotiations might get trickier but there are still some expectations that a resolution will be found in 2021.

Meanwhile, Libya and Venezuela added 10,000 b/d each in June, producing 1.16 million b/d and 550,000 b/d, respectively, the survey found.

The Platts figures, which measure well-head production, are compiled by surveying oil industry officials, traders and analysts, as well as reviewing proprietary shipping, satellite and inventory data.

OPEC+ crude production (million b/d)

OPEC-10
JUNE
CHANGE
MAY
QUOTA
COMPLIANCE
Algeria
0.91
0.02
0.89
0.898
92.45%
Angola
1.10
-0.01
1.11
1.298
186.09%
Congo
0.27
0.01
0.26
0.276
112.24%
Equatorial Guinea
0.10
-0.01
0.11
0.108
142.11%
Gabon
0.17
-0.01
0.18
0.159
60.71%
Iraq
3.94
-0.05
3.99
3.954
102.00%
Kuwait
2.39
0.03
2.36
2.387
99.29%
Nigeria
1.48
-0.07
1.55
1.554
126.91%
Saudi Arabia
8.97
0.47
8.50
9.347
122.81%
UAE
2.67
0.03
2.64
2.692
104.62%
TOTAL
22.00
0.41
21.59
22.673
116.78%
OPEC EXEMPT
JUNE
CHANGE
MAY
QUOTA
COMPLIANCE
Iran
2.48
0.05
2.43
N/A
N/A
Libya
1.16
0.01
1.15
N/A
N/A
Venezuela
0.55
0.01
0.54
N/A
N/A
TOTAL OPEC-13
26.19
0.48
25.71
N/A
N/A
NON-OPEC
JUNE
CHANGE
MAY
QUOTA
COMPLIANCE
Azerbaijan
0.61
0.02
0.59
0.610
100.00%
Bahrain
0.18
0.01
0.17
0.174
80.65%
Brunei
0.09
0.00
0.09
0.087
80.00%
Kazakhstan
1.47
0.00
1.47
1.469
99.58%
Malaysia
0.45
0.02
0.43
0.506
162.92%
Oman
0.75
0.01
0.74
0.750
100.00%
Russia
9.51
0.00
9.51
9.457
96.57%
Sudan
0.06
0.00
0.06
0.064
136.36%
South Sudan
0.15
0.00
0.15
0.110
-100.00%
TOTAL NON-OPEC
13.27
0.06
13.21
13.227
98.04%
OPEC-10 + NON-OPEC
JUNE
CHANGE
MAY
QUOTA
COMPLIANCE
TOTAL
35.27
0.47
34.80
35.90
110.16%