Overall production down 150.9 MBOPD; Iraq v. Kurdistan trouble takes out 131 MBOPD
OPEC has released this month’s Monthly Oil Market Report, outlining the cartel’s assessment of the state of the international oil industry.
October was a good month for OPEC cuts, with compliance rising. Numerous countries saw oil production decrease, with total OPEC output falling by nearly 151 MBOPD.
Iraq production down 131 MBOPD as Kurdistan moves for independence
Unsurprisingly, production fell in Iraq in the past month. Iraqi Kurdistan voted for independence in late September, causing disruption in the northern part of the country. Kurdistan claimed Kirkuk, one of the most important oil fields in Iraq, throwing production from the field into question.
Iraqi forces captured much of the region’s oil infrastructure in mid-October, securing control of the field. While the capture was peaceful, the chain of events meant Iraqi oil production fell by 131 MBOPD. The Kurdish government recently proposed an end to its independence push, so the disruption in northern Iraq is likely to diminish in coming weeks.
This is good news for cut compliance, as Iraq has historically displayed among the lowest levels of cut compliance of any OPEC member.
According to Bloomberg, the country had only cut 67 MBOPD in September, compared to its pledge of 210 MBOPD. The drop in October would not be enough to bring Iraq into compliance but would mean the country has cut 198 MBOPD, much closer to its target. However, much of the output drop is likely temporary, and the country may reopen the spigots next month.
Venezuela looks to restructure
Venezuelan production also fell this month, dropping by 43.6 MBOPD. Venezuela announced its intention to restructure its debt this month, sparking what will likely be a tremendously complicated process. Analysts are already drawing comparisons to Argentina’s debt saga, which was “one of the most complicated and painful restructurings seen in Latin America over the past two decades.”
Further complicating the process is U.S. sanctions, which prevent bondholders from doing business deals with many Venezuelan entities. The head of the restructuring effort, Tareck El Aissami, for example, is sanctioned as a drug kingpin in the U.S. Individuals entering into a business deal with El Aissami could, in theory, face 30 years in jail. While it is nearly impossible to predict the ultimate outcome of this restructuring, it will likely disrupt the activities of PDVSA, and decrease production in the interim.
Non-cutting producers are a wash
Libya and Nigeria, which are not bound by the cut agreement, nearly canceled each other out this month. Libyan production rose by 42.3 MBOPD, as the government attempted to ensure the security of its oil-producing assets.
This effort was not as successful in Nigeria, which saw output drop, with oil production falling by 54.4 MBOPD to 1,738 MBOPD. Nigeria has been attempting to return production to about 1.8 MMBOPD, and did achieve this goal over the past few months. That job has just become more difficult, as the ‘Delta Avengers,’ a militant group based in Nigeria’s oil producing delta region, announced the ceasefire the group agreed to last year is over. Attacks by the group previously cut production from a peak of 2.2 MMBOPD to nearly 1 MMBOPD, according to Reuters.
Compliance rises to 108%
Not including Libya and Nigeria, OPEC production fell by 138.8 MBOPD in October, pushing cut compliance higher. According to Bloomberg OPEC countries demonstrated 108% cut compliance in October, the first time compliance has been above 100% since May.
