Saudi Arabia signals it’s had enough of OPEC+ quota cheats
London, UK – For the last year, Saudi Arabia has largely turned a blind eye to cheaters within the OPEC+ alliance, cutting its own output more than agreed to offset over-production from the likes of Iraq and even Russia. Now, Riyadh’s had enough.
Prince Abdulaziz bin Salman, who took over from Khalid al Falih in September, will likely use his first OPEC meeting as Saudi oil minister this week to signal OPEC’s dominant producer is no longer willing to compensate for other members’ non-compliance, according to people familiar with the kingdom’s thinking. OPEC meets in Vienna on December 5, followed by the larger OPEC+ alliance, which includes Russia, the next day.
“Saudi Arabia is taking a harder line than in the past,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd in London. “Riyadh is making very clear that they don’t want to shoulder all the cuts alone.”
The willingness to tolerate cheating was a key part of the ‘whatever it takes’ policy to support oil prices that Falih set out in late 2016, borrowing a line from central banker Mario Draghi.
Falih paid lip service to dealing with the cheating, trying to cajole OPEC+ nations to cut output as much as they had promised. But when his admonitions failed and oil prices faltered, endangering the initial public offering of state oil producer Saudi Aramco, he simply decided to bear the burden. Earlier this year, in an abrupt change to decades of Saudi oil policy, Riyadh cut production far below their agreed target.
Whether the new policy simply represents a shift in tone, or a more meaningful change isn’t yet clear. Saudi officials privately say Prince Abdulaziz will simply reiterate the decades-long Saudi mantra that everyone needs to contribute to make the production cuts successful.
The prince already made the point when he attended an OPEC+ committee meeting in Abu Dhabi in September. “Every country counts regardless of its size,” he had said.
The cheating has been widespread. Iraq, for example, should be pumping no more than 4.51mn barrels per day (bpd); but in some months it produced nearly 4.8mn bpd. Kazakhstan accepted a limit of 1.86mn bpd, however, it has produced closer to 1.95mn barrels. Nigeria agreed a quota of 1.68mn barrels a day, but has regularly pumped more than 1.8mn bpd. Russia has pumped more oil than allowed by the OPEC+ deal in eight months this year. It has complied with the agreement in only three months of this year May, June and July - when disruption to the key Druzhba oil pipeline pushed production below its OPEC+ target.
The policy of accommodating cheating has been costly for the kingdom. Riyadh was forced to reduce its own production as much as 700,000 barrels a day below its own OPEC+ quota to prevent oil prices from falling.
Prince Abdulaziz bin Salman