OPEC supply cut compliance rises in March as UAE joins pact

OPEC supply cut compliance expected to reach 95 per cent

Analysts anticipate OPEC members’ compliance with the cartel’s output reduction agreement to reach 95 per cent in March as the United Arab Emirates cut output this month and production disruptions in Nigeria and Libya, countries exempted from the OPEC supply cut pact.

A Reuters survey showed the drop in total production by the UAE helped boost compliance to the record high, above the 94 per cent compliance anticipated in February.

In January, most OPEC members along with some non-cartel countries agreed to reduce crude production by 1.8 million b/d in an effort to end the global oil glut that has kept oil prices low.

Despite OPEC’s efforts, crude stocks have remained high, which may mean the group will extend the cutbacks into the second half of 2017.

“OPEC is now facing the prospect of falling short of its objective,” Stephen Brennock of oil broker PVM told Reuters. “Bulging global oil stockpiles will not draw down to the five-year average unless OPEC-led cuts are extended.”

In March, the United Arab Emirates trimmed their output more than expected due to higher compliance and planned maintenance, according to industry sources.

The UAE was slower than Kuwait and Saudi Arabia to cut supply, but officials say the country will work to improve compliance for the duration of the pact.

According to the Reuters survey, Saudi Arabia’s output rose slightly in March after a large reduction in February. Even with the bump in March output, the kingdom’s total supply cut is 564,000 b/d, well above the target cut of 486,000 b/d.

This month, deeper cuts made by Saudi Arabia, Kuwait and UAE will compensate for weaker adherence from other countries, including Algeria, Ecuador, Gabon and Venezuela.

The survey showed exports from northern and southern Iraq ports helped the cartel member boost its compliance with the deal.  Iran’s output increased slightly as Tehran was allowed a small increase in output under the pact.

Nigerian production fell in part due to planned maintenance at the Bonga field, but the latest recovery in Nigerian oil production was slowed due to armed protests blocking output from two fields.

According to the OPEC supply deal, the cartel’s production target is 32.5 million b/d, based on low compliance from Nigeria, Libya and Indonesia, which has since left the group.

With participants’ compliance and reductions in Libyan and Nigerian production, OPEC averaged 32.01 million b/d, slightly above its supply target adjusted to remove Indonesia.