OPEC’s Strong Start to New Oil Cuts Marred by Usual Suspects

(Bloomberg) -- OPEC's delivery of its latest oil-production cutbacks, while strong overall, was undermined by its habitual laggards.

The Organization of Petroleum Exporting Countries implemented three-quarters of the cuts pledged in May to re-balance a global market upended by the coronavirus, according to a Bloomberg survey. Yet performance was marred by Iraq and Nigeria, who executed less than half of their agreed reduction.

The cartel and its partners, who make up a 23-nation alliance known as OPEC+, promised to collectively curb output by a record 9.7 million barrels a day in May and June amid an unprecedented collapse in fuel demand. The coalition will meet this week or next to consider its next step.

OPEC+ will discuss maintaining that level of cuts for another couple of months to disperse a billion-barrel glut that's accumulated during the pandemic, and the high compliance rate so far may encourage ministers they can keep it going. At the same time, the laggards may be in for criticism for diluting the impact of the strategy.

OPEC reduced production by 5.84 million barrels a day to 24.6 million a day in May, the lowest since 2002, according to the survey. It's based on information from officials, ship-tracking data and estimates from consultants including JBC Energy GmbH and Energy Aspects Ltd. The overall compliance rate was 77%.

The performance is not quite as stellar as initially indicated by tanker-trackers that showed the group had almost fully implemented the agreement.

Saudi Arabia, the organization's biggest producer, the United Arab Emirates and Algeria -- countries with a strong track record of adhering to OPEC agreements -- made almost all the reductions they promised. The Saudis slashed output by 2.89 million barrels a day to 8.7 million.

The kingdom, the U.A.E. and Kuwait have pledged to jointly cut an extra 1.2 million barrels this month to speed up the market's recovery. At $37 a barrel, crude prices are still well below the levels most OPEC+ nations need to cover government spending.

Lagging Behind

Iraq and Nigeria, however, didn't perform anywhere near as well.

While their cutbacks in May marked better-than-usual compliance from the two exporters -- who often disregard their commitment to cut entirely -- they were still well short of requirements. Iraq's compliance was at 42%, and Nigeria's just 34%.

The pair have been rebuked in the past by OPEC's leading members for their errant behavior, which could be an issue again at the group's upcoming gathering.

OPEC+ is still finalizing the date of the imminent virtual conference, after Algerian Energy Minister Mohamed Arkab -- who holds OPEC's rotating presidency -- circulated a proposal at the weekend to hold the gathering a little earlier, on June 4 instead of June 9-10.

When they meet, ministers are going to focus on potentially extending the full 9.7 million-barrel-a-day cut by a couple of months, according to delegates who asked not to be identified. The group would subsequently relax the reduction slightly, to just under 8 million a day, for the rest of the year.