Saudi Aramco ‘lynchpin’ of OPEC cuts as US briefly takes producer top spot – IEA

LONDON (ICIS)–Saudi Arabia remains the driving force of OPEC production cuts, keeping domestic output down as other signatories to the deal start to breach compliance levels and helping the US briefly become the world’s largest oil exporter, the International Energy Agency (IEA) said on Thursday.

Overall OPEC production cuts were at 116% in August, but three major signatories to the deal, Russia, Nigeria, and Iraq, produced 600,000 bbl/day above their allocations, while Saudi Arabia kept output 600,000 bbl/day below what it is allowed to produce.

Saudi Arabia’s discipline comes at a point where competition for market share is intensifying following months of decade-low demand through the first half of 2019.

“A reminder to the producers that competition for market share is getting tougher comes from preliminary data showing that in June the US momentarily overtook Saudi Arabia and Russia as the world’s number one gross oil exporter,” the IEA said in its monthly Oil Market Report.

“While the relentless stock builds we have seen since early 2018 have halted, this is temporary. Soon, the OPEC+ producers will once again see surging non-OPEC oil production with the implied market balance returning to a significant surplus and placing pressure on prices. The challenge of market management remains a daunting one well into 2020,” it added.

The US briefly became the world’s largest oil exporter in June, when a 3m bbl/day surge in overseas sales pushed total wholesale exports to 9m bbl/day, as Saudi Arabia cut back output and Russian supplies were constrained due to contamination issues along the Druzhba pipeline.

Saudi Arabia reclaimed the top spot the month after, as hurricanes disrupted US production, and the ongoing difficulties in finding fresh markets for shale-derived stocks due to the US-China trade war.

The IEA held its annual demand growth estimate for 2019 at 1.1m bbl/day, despite the fact that June data shows that additional June take-up stood at 200,000 bbl/day, lower even than the 500,000 bbl/day average for the first half of the year.

The agency projected that oil pricing 20% below the same period last year would support customer demand, and that the significantly weaker level of growth in the second half of 2018 would provide a lower comparative base.

Additional new petrochemicals capacity is also expected to buoy demand, the agency said.

A rebound in US output growth following hurricane curtailments ratcheted up international supply by 530,000 bbl/day in August to 100.7m bbl/day.

Projected continued strong US output growth and significant expansions in Norway and Brazil are set to increase non-OPEC supply growth both this year and next, to 1.9m bbl/day in 2019 and 2.3m bbl/day in 2020.

This is expected to reduce OPEC demand to 28.3m bbl/day in the first half of next year, significantly below the cartel’s own estimates last month.

Saudi Prince Abdulaziz bin Salman was named as the country’s new energy minister earlier this month, placing a member of the Kingdom’s royal family in charge of oil policy for the first time.

Abdulaziz helped to broker the OPEC+ production cut deal, and is a “well-known and experienced figure”, according to the IEA.

Pictured: A refinery in Iraq, archive image; Iraq, Russia and Nigeria, produced in August more crude oil than the agreed in the output cut deal
Picture source: Action Press/Shutterstock