Third Party Analysis Verifies OPEC Cutback Measures - but All-Out Production from Iran, Libya Obliterate the Benefits

by Ship & Bunker News Team
Friday January 27, 2017

A dramatic good news/bad news scenario about the Organization of the Petroleum Exporting Countries' (OPEC) quest to lower oil output was delivered on Friday, with a much-needed independent analysis revealing that the cartel is indeed making strides to reach its goal of removing 1.2 million barrels per day (bpd) from the global market.

The bad news is that Iran has exceeded its deemed OPEC production ceiling of just under 3.8 million bpd – and that Libya has restored its production capabilities and is headed towards its goal of pumping 900,000 bpd in the next few months.

Daniel Gerber, chief executive of Petro-Logistics (one of several consultants that estimate OPEC supply) said in an email that OPEC output is set to fall by 900,000 bpd this month, "suggesting a high level of compliance thus far into the production curtailment agreement."

The findings come in advance of OPEC announcing any figure for its January output.

But as many analysts have argued that any market benefit of the OPEC's cutbacks (which they say are minuscule compared to total global output) could easily be obliterated by a rogue nation going all-out in its production capabilities, and this week that dubious honour goes to Iran, whose petroleum minister, Bijan Zanganeh, disclosed on the sidelines of a cabinet meeting that the Islamic republic is currently pumping 3.9 million bpd of crude.

This comes on the heels of reports that VLCC Huge and VLCC Snow are en route to Rotterdam to offload 4 million barrels of crude in February – the first such shipment in five years.

Platts notes that Zanganeh's statement indicates "a further 500,000 bpd rise in production even though other major oil producers from within and outside OPEC make cuts after 24 producers, including Iran, agreed in December to cut around 1.8 million b/d of total crude output from January for six months."

Earlier this week, Zanganeh also confirmed that a consortium comprising France's Total, China National Petroleum Corp., and Iran's Petropars have signed a heads of agreement for developing Phase 11 of the huge South Pars offshore gas field; another heads of agreement has been signed with Persian Oil and Gas Co. to develop the major Yaran, Maroon, and Koupal onshore oil fields in Iran's Wes Karoun region.

While Zanganeh boasted that his country will soon restore output level to 4 million bpd, Mustafa Sanalla, chairman for NOC, announced that technical malfunctions at Libya's Sarir oilfield have been corrected and production has been restored at 700,000 bpd; Libya aims to raise production to 900,000 bpd in next few months, and to 1.25 million bpd by the end of this year.

Moreover, to address the problem of Libya requiring supporting oilfield service companies to reach its output goals, the country announced earlier this week that it will re-open its oil sector to new foreign investments for the first time in five years; if this proves successful, output could increase to 1.6 million bpd by 2022.

Much of today's news supports observations from Martin Craighead, chief executive officer at Baker Hughes Inc., who earlier this week told investors "There's a bit of a disconnect between the OPEC cuts that were announced and what we're forecasting at least for the next six months in terms of activity."