Early Signs of OPEC Supply After Algiers Deal Show Saudi Dilemma

ALGIERS (Capital Markets in Africa) – Just days after OPEC agreed the framework for its first production cut in eight years, initial estimates of the group’s output this month show the potential bind faced by its most powerful member.

While Saudi Arabia lowered output this month — following the typical seasonal shift as local consumption sags at the end of summer — the group’s overall output remained steady as Nigeria and Libya restored disrupted supplies and Iran continued its return from international sanctions, according to data from Vienna-based consultants JBC Energy GmbH.

Saudi output fell by 140,000 barrels a day to 10.5 million a day last month, the data show. At the same time, Nigeria added 90,000 barrels a day and Libya pumped an extra 30,000, JBC said. That left total OPEC output stable at 33.5 million daily barrels, illustrating the challenge the Gulf kingdom may face to deliver on the Sept. 28 pledge to reduce the group’s output to 32.5 million to 33 million barrels a day.

The Organization of Petroleum Exporting Countries agreed two days ago in Algiers that it would limit supply in a bid to shrink the world’s bloated oil stockpiles and boost prices. It set up a committee to work out how to divide up the necessary output cuts between members over the next two months, then make recommendations at its next meeting in Vienna on Nov. 30.

Within hours of the announcement, Iran and Nigeria said they considered themselves exempt from any commitment to freeze supply, while Iraq rejected OPEC’s own estimates of how much crude it’s pumping — which could determine the size of eventual output cuts. Libya had said prior to the Algiers meeting that, with its output slashed by years of internal conflict, it didn’t expect to be bound by the deal.

If each of those countries boosts output, it would require deeper cuts from other members to fulfil this week’s agreement. Algeria initially proposed at the Sept. 28 meeting that Saudi Arabia should make the largest cuts, with a reduction of almost 800,000 barrels a day, followed by the United Arab Emirates and Iraq.

Source: Bloomberg Business News