Seaborne oil exports of OPEC and its allies (OPEC+) increased to 26.8 million b/d in February, up 757,000 b/d month-on-month (m/m) compared to January, according to Kpler data. The increase comes despite OPEC+ deciding to keep supply steady for February, and Saudi Arabia pledging an additional, voluntary 1 million b/d production cut.
Most OPEC+ members boosted oil exports, particularly countries with a higher fiscal breakeven price such as Iraq or Nigeria, up by 291,000 b/d and 200,000 b/d respectively, according to Kpler. Kazakhstan, which was allowed to increase production by 10,000 b/d as per its February quota, exported almost 350,000 b/d more oil during the month. Russia’s seaborne exports increased by 73,000 b/d, close to what it was supposed to bring back on the market as per the January agreement (+65,000 b/d).
The largest declines were seen in Iran, Saudi Arabia, Equatorial Guinea, and the UAE (down by a combined 666,000 b/d m/m) although the final estimate for Iran may change to the upside. Despite its pledge to cut production by 1 million b/d, Saudi Arabia’s exports only fell by 194,000 b/d while its domestic inventories fell by only 3.3 million bbl on the month, or 119,000 b/d, suggesting that Aramco did not entirely follow suit on the Saudi Minister of Energy’s vow to decrease production by 1 million b/d, although exports in late February have weakened, a sign cuts are slowly taking place.
Due to overall higher exports – and most likely lower compliance from some members – market supply reductions reached 90% in February compared to the group’s cut target of 8.125 million b/d for that month vs its baseline, a shortfall of 777,000 b/d. This takes into account Saudi’s voluntary cut of 1 million b/d.
The group is expected to bring an additional 1.5 million b/d of supply in April (1 million b/d from Saudi Arabia, ending its voluntary 1 million b/d production cuts for February and March, and 500,000 b/d from the rest of OPEC+) at the next OPEC+ meeting which will take place Mar. 3-4. This is currently priced in, but the latest details about market supply could bring downside pressure on prices, pushing OPEC+ to adopt a more cautious approach in easing cuts.
According to Kpler, lower compliance and higher prices could raise new issues, particularly between Russia on one side, and Saudi Arabia and the UAE on the other. The latter two are likely to be more cautious and willing to continue the hard work until excess inventories is gone, while Russia, which enjoys a much lower fiscal breakeven price, is concerned about higher prices that could stimulate competition from US shale players.
All eyes remain set on global oil inventories. While drawn 76 million bbl in the past 3 months, the pace of decline is weakening and the curve is flattening. Since the beginning of the year, oil held in onshore storage has only drawn 17.5 million bbl and the level is 12.5 million bbl higher compared to end-January. Additionally, inventories are still 150 million bbl higher y/y, indicating the rebalancing isn’t yet over.
