OPEC Cutback Compliance at 6-Month Low, And More Woes May Be Delivered by Kuwait

Libya, Nigeria, and Iraq are reported to be among the worst offenders of OPEC's attempt to rebalance the market.

News last week that Organization of the Petroleum Exporting Countries' (OPEC) compliance of its troubled crude cutback initiative is at a six month low, along with the cartel reportedly having anticipated a revival in production from Nigeria and Libya, adds to the list of factors that could put pressure on the market in the near term.

But the focus may soon shift from those two countries with word that Kuwait intends to boost its production capacity.

The International Energy Agency in a report released Thursday stated that "Higher output from [OPEC] members bound by the production pact knocked compliance to 78 percent in June, the lowest rate during the first six months of the agreement."

The IEA added that "compliance with agreed non-OPEC output curbs improved to 82 percent in June, overtaking compliance from OPEC for the first time since the cut took effect in January."

Global oil supplies rose by 720,000 barrels per day (bpd) in June across the world and by 340,000 bpd in OPEC countries, according to the report, driven not only by Libya and Nigeria but also countries subject to the cartel's cutback agreement.

This includes Iraq, which had asked for and was denied an exemption to the OPEC cutbacks and as a result managed just 29 percent of its pledged cuts in June

Mohammad Barkindo, secretary-general for OPEC, told Bloomberg television that his cartel was anticipating a revival in production from Libya, Nigeria, and Iran when it set a targeted output range from 32.5 million to 33 million bpd under its agreement and has flexible targets to accommodate more crude from the three countries.

He said, "What we would like to see is an orderly recovery that would not disrupt significantly the re-balancing of the market, which is a very delicate process that has taken longer than expected because of the change in fundamentals."

Bardinko also remarked, "We are glad these countries are recovering fast" and that supply and demand now "show us we are on the right course" to reducing stockpiles.

If Bardinko's remarks strike fundamentals-driven observers as specious, they also assume a slightly surrealistic tone in light of Bakheet al-Rashidi, CEO of state-run Kuwait Petroleum International Ltd., telling media this week that his nation plans to raise oil-production capacity to as much as 4.75 million bpd after 2030 as it builds refineries in Asia to process more of its crude.

Kuwait also plans to increase capacity to 4 million by 2020 and to keep it at that level until 2030.

KPI, the international refining arm of KPC, intends to add or expand processing plants in China, India, Vietnam, the Philippines, and Indonesia:"We see growth in these countries, so we will be there," said al-Rashidi.

Market analysis of unfolding events has seemed to have reached an impasse, with some factions saying further OPEC cuts are need to alleviate the glut, and others arguing that will only encourage more U.S. production; seemingly as a compromise, key figures such as Alexander Novak, oil minister for Russia, and Dan Yergin, vice chairman at IHS Markit, are suggesting that oil in the $50s is the new and fair norm.