If OPEC+ Announces a New Cut, It May Not Be Quite What It Seems

(Bloomberg) --

Speculation is mounting that OPEC and its allies may agree a deeper production cut at their meeting in Vienna on Thursday, but market watchers shouldn't take any such announcement at face value.

Even a sizable “new” cut like the 400,000 barrel-a-day reduction Iraq's Oil Minister Thamir Ghadhban was suggesting wouldn't necessarily remove any oil from the market. It could simply formalize the group's current production, which has been well below its target for most of 2019.

A year ago, the Organization of Petroleum Exporting Countries and its allies agreed to remove 1.2 million barrels a day from the market. In October, their cuts actually added up to about 1.7 million barrels a day, according to the group's Joint Technical Committee.

So the group could deepen its output-cuts target by as much as 500,000 barrels a day without requiring any member to pump less oil.

Saudi Arabia is responsible for most of the excess cuts this year. It has pumped an average of 9.8 million barrels a day, well below its 10.3 million target, according to data compiled by Bloomberg. The kingdom voluntarily more than doubled its reduction to lead by example and give the OPEC+ deal a little extra bite.

Other nations including Angola, Azerbaijan and Mexico have also made deeper cuts, mainly because they have been unable to sustain production at the target level due to natural decline.

In recent months, Saudi Arabia raised its output above 10 million barrels a day to replenish inventories that were tapped to maintain customer deliveries after the September air strikes on its largest oil facility.

The kingdom told OPEC it pumped 10.3 million barrels a day in October. In November, a Bloomberg survey showed it had already started the process of paring back output to just above 10 million barrels a day as the disruption faded.

By agreeing additional cuts, the Saudis could in effect be guaranteeing a return to the pre-attack status quo, perhaps using it as an incentive to push better implementation of cuts from Iraq, Russia and Nigeria.

To contact the reporter on this story: James Herron in London at jherron9@bloomberg.net

To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Christopher Sell

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