Rising Russia Production and Iran Exports Still Inline with Oil Cut Commitments: Analysts

by Ship & Bunker News Team
Thursday May 3, 2018

The latest figures associated with the Organization of the Petroleum Exporting Countries' (OPEC) crude production cutbacks begs the question: if a good outcome is achieved despite the behaviour of the players charged with achieving that outcome, how much faith can be placed in the possibility of the good news continuing?

It's presumably a question many analysts are asking themselves in the wake of the latest round of excuses involving rampant production, specifically: Iran ramping up exports in April to the highest level since international sanctions against the Islamic republic were eased more than two years ago.

According to ship-tracking data compiled by Bloomberg, crude shipments climbed to 2.48 million barrels per day (bpd) last month from 2.06 million bpd in March, and this coincided with a 4 million barrel drawdown from tankers storing oil at sea, tanker tracking showed.

But Bloomberg downplayed these figures by turning to Richard Mallinson, analyst for Energy Aspects, who noted that "Production is relatively flat right now" at about 3.8 million bpd; "we certainly don't think it's on the rise."

Iman Nasseri, an analyst at consultant FGE, was also quoted as saying, "If Iran wants to increase its output capacity to 4.5 million or 5 million barrels a day, they will need major investments and technological advancements which they are lacking now."

Left unsaid was the all-important and apparent intent of Iran to do anything it can to maximize crude production and trading to improve its own fortunes, regardless of what OPEC wants or the global market's health.

In a similar vein, Alexander Novak, energy minister for Russia, on Thursday stated his country is "fully committed" to bringing balance to the crude market, and he reaffirmed a pledge to an alliance with OPEC - despite two consecutive months of breaching its target under the cartel's cutbacks.

Novak went on to state, without elaborating, that "fluctuations" in Russia's oil output in April were caused by "activity" at projects developed under production-sharing agreements.

Andrew Reed, principal at ESAI Energy LLC, was not impressed by Novak's gesture of support: "Six months from now, Russia may follow Kazakhstan's example, restraining output at some fields to demonstrate 'good intentions' even as overall production climbs."

He added that growing spare capacity at oil projects run by state-controlled Rosneft PJSC and Gazprom Neft PJSC "will soon lead to weakening Russian compliance."

The scenario of OPEC bragging about high compliance combined with the relentless pumping of its members and halfhearted reasons for doing so has characterized the cartel's cutback initiative for two years now; and in 2018, frequent statements of 100 percent-plus compliance have been almost entirely due not to intent but circumstances beyond members' control, while Nigeria, Libya, Algeria, and Iraq have been identified as the members most likely to exceed their quotas.