OPEC+ overcompliance leaves room for Saudi oil production boost

London, UK - OPEC and its allies are pumping half a million barrels a day below the target they set two months ago, suggesting there’s room for Saudi Arabia to open the taps. Whether or not it will do so is unclear.

The so-called OPEC+ group is currently achieving 129 per cent of its target, meaning it’s pumping less than it pledged in June, delegates said ahead of a meeting in Algeria on Saturday. Saudi Arabia and Russia are among the few producers able to ramp up supply, though any increase would reduce the cushion of spare capacity, testing their ability to react to future disruptions.

OPEC+ officials were gathering on Saturday in Algiers to review output data before a meeting of the Joint Ministerial Monitoring Committee (JMMC) today, a group that includes the Saudi and Russian oil ministers and observes producers’ compliance. Officials aren’t discussing any proposal beyond June’s agreement to achieve 100 per cent compliance with quotas initially established in 2016, the delegates said, asking not to be identified because the information is private.

Output declines in Iran, Venezuela, Kazakhstan and Mexico are largely to blame for the August data, delegates said. The overcompliance contrasts with OPEC pledges made in June, when Saudi Oil Minister Khalid al Falih suggested 1mn barrels a day may flow to the market. Indeed, the kingdom’s own output actually dropped in July amid signs that it couldn’t ultimately find buyers to justify pumping at a record.

Oil prices have climbed about 18 per cent this year, but divisions in the Organization of Petroleum Exporting Countries are making it almost impossible to agree on collective action to cool the rally. Iran fears an output ramp-up by Saudi Arabia and Russia would steal the market share it’s losing to American sanctions, yet both nations are eager to temper prices amid pressure from the US.

Laying bare the fissures within the OPEC+ group, recent data from Russia show the country’s crude production has already jumped to a new post-Soviet record.

The overall 129 per cent compliance figure compares with 109 percent for July, OPEC+ data show. It also contrasts with August production estimates from the International Energy Agency that suggest compliance closer to 100 per cent. In any event, the so-called JMMC has no mandate to decide on how supply increases will be shared out to reach targets, delegates said, adding that the decision will be taken at the next ministerial meeting in Vienna.