OPEC crude output fell the most in two years last month as the group implemented almost 80 percent of its new production cuts deal.
Top exporter Saudi Arabia cut deeper than pledged, while its close allies the United Arab Emirates and Kuwait also made sizable reductions. Those deliberate curbs were compounded by involuntary output drops in Iran, targeted by U.S. sanctions, and Libya, both of which were exempt from the group’s agreement.
Output from the Organization of Petroleum Exporting Countries’ 14 current members fell by 930,000 barrels a day last month to 31.02 million, according to a Bloomberg survey of officials, analysts and ship-tracking data. OPEC’s 15th member, Qatar, left the group at the end of December.
OPEC and its allies renewed their production cuts accord in December after a 40 percent plunge in crude prices, prompted by record American shale flows and doubts about the strength of demand. The group, which is known as OPEC+ and includes Russia, agreed to remove 1.2 million barrels a day from the market, compared to October levels, during the first six months of 2019.
OPEC’s share of the cut is 800,000 barrels a day, to be delivered by 11 members excluding Iran, Libya and Venezuela. Those 11 nations implemented 79 percent of their pledged cuts in January, the survey found. That means they would need to cut about another 170,000 barrels a day to fully implement the agreement.
The OPEC+ deal defied U.S. President Donald Trump’s pressure to maintain oil flows and keep prices low. West Texas Intermediate crude futures jumped more than 18 percent last month, the biggest January gain on record, and traded just below $54 a barrel on Friday.
Saudi Arabia followed through on its pledge to make a quick and early start to the agreement. It cut production by 450,000 barrels a day from December to reach 10.2 million, about a third deeper than required under the terms of the deal. This is a huge reduction from record output of 11.1 million barrels a day in November.
Energy Minister Khalid Al-Falih said he expects to reduce oil output “well below” the kingdom’s target and promised deeper cuts in February. Its voluntary limit under the OPEC+ accord is 10.3 million barrels a day.
Iraq, which among major OPEC producers had the worst record of implementing the previous round of output cuts agreed in 2016, pumped 4.69 million barrels a day last month, above its agreed target of 4.51 million.
As is often the case with OPEC, a big portion of the curbs were involuntary. Iran’s output fell by 150,000 barrels a day to 2.74 million as customers were discouraged by U.S. sanctions. Production is down 39 percent since Trump announced in May he was abandoning a nuclear accord with the Islamic Republic.
Libya, plagued by clashes and unrest since the fall of former leader Moammar Qaddafi in 2011, pumped 900,000 barrels a day in January, a drop of 100,000 and the lowest since July. The country’s biggest oil field, Sharara, remains shut after being occupied by an armed group for almost a month. The nation’s exports have also been hampered by the repeated closure of oil terminals due to bad weather.
Although Venezuela posted a small production increase of 50,0000 barrels a day to 1.27 million last month, its industry remains vulnerable. The U.S. imposed sweeping sanctions against its state oil company, which could turn out to be a de facto oil embargo unless President Nicolas Maduro bows to pressure from the Trump administration and steps aside.
OPEC+ ministers will convene again in the Azeri capital of Baku in March to assess if they need to extend their oil-production accord beyond the summer. Uncertainty about the impact of U.S. sanctions on two of their members may play a decisive role in their deliberations.