A Canadian Natural Resources pump jack pumps oil out of the ground near Dorothy, Alberta in this file photo.Todd Korol/Reuters
Saudi Arabia emphasized its commitment to eliminating a global oil-supply glut, promising deep cuts to exports next month even as OPEC and its allies allowed Libya and Nigeria to keep increasing output.
Shipments from the Organization of Petroleum Exporting Countries' largest producer will be capped at 6.6 million barrels a day in August, one million lower than a year earlier, Saudi Arabia's Energy and Industry Minister, Khalid Al-Falih, told reporters on Monday after meeting fellow producers in St. Petersburg, Russia. Nigeria and Libya – both exempt from cutting – will be allowed to increase output to their targeted levels, although both would struggle to achieve that, he said.
Despite the renewed focus on exports, the meeting of ministers from OPEC and non-OPEC producers left their supply deal largely unchanged, betting that rising demand will combine with the existing curbs to rapidly deplete fuel stockpiles and buoy prices in the second half. That could prove to be a risky wager if production from countries not bound by any restrictions keeps growing to fill the gap left by others. "We remain supportive of our brothers and partners" in Libya and Nigeria as they recover, Mr. Al-Falih said. "The committee, however, should monitor the impact of such growth in supply on global supply-demand balances."
Oil slumped into a bear market last month and Brent crude, the international benchmark, is trading at about $48 (U.S.), a gain of less than $2 since the cuts were agreed on last year. While demand will be almost two million b/d higher in the second half of the year compared with the first six months, according to OPEC estimates, rising supply inside and outside OPEC suggests the cuts won't put a significant dent in bloated global inventories.
Libya and Nigeria are a big part of the problem. The African countries, granted an exemption last year from cutting because their output had already been reduced by internal strife, added 440,000 b/d of production in the past two months, according to data compiled by Bloomberg. That's equivalent to about a third of the reductions implemented by fellow OPEC members.
That recovery had prompted speculation that OPEC would seek to limit their production at the St. Petersburg talks, but other members accepted that both countries were still below their full potential.
Nigeria is ready to cap output at 1.8 million b/d, if it is able to reach that level, Oman's Minister of Oil and Gas, Mohammed bin Hamad Al Rumhi, told reporters after the meeting. Its production hasn't risen that high since February, 2016, and despite the country's success ending militant attacks, oil theft is still hurting output.
Libya has a target of 1.25 million b/d, Mr. Al-Falih said. That's almost 50 per cent above its average June production of 840,000 b/d, according to data compiled by Bloomberg.
The Saudi minister pushed to improve implementation of the production cuts from the countries already participating in the deal. Compliance dropped to 92 per cent in June from 110 per cent in May, according to people familiar with OPEC's internal data. Iraq made just 28 of its pledged cuts.
"Some countries continue to lag" in their compliance, "which is a concern we must address head on," Mr. Al-Falih said. "Exports have now become the key metric for financial markets, and we need to find a way to reconcile credible export data with production data in our monitoring."
The Joint Technical Committee, which monitors compliance with the cuts, will now also study data on exports, he said.