OPEC’s crude production slumped again last month as the cartel implemented planned cutbacks in full and some members were hit by U.S. sanctions.
Saudi Arabia, Kuwait and the United Arab Emirates delivered all — and in some cases more — of the supply curbs they pledged to try to prevent a global glut. OPEC and its allies are embarking on a new round of cuts as record American shale output and fragile fuel demand put downward pressure on crude prices.
Still, almost half of the output drop was caused by unplanned losses in Venezuela and Iran, which are under trade restrictions imposed by President Donald Trump. The plunge shows that, despite Trump’s guidance this week that OPEC should “relax” instead of restraining supply, the group’s production is highly influenced by the president’s foreign policy.
Output from the 14 members of the Organization of Petroleum Exporting Countries fell by 560,000 barrels a day in February to 30.5 million a day, according to a Bloomberg survey of officials, analysts and ship-tracking data.
As a result, the 11 members involved in the agreement to rein in supply have implemented 108 percent of the reduction they announced late last year. Their output is broadly in line with the 30.6 million daily barrels the group estimates is needed this year, meaning that global markets should be in balance.
Saudi Arabian Energy Minister Khalid Al-Falih gently rebuffed Trump’s call to ease up on its strategy, saying in Riyadh on Feb. 27 that OPEC should continue to limit supply into the second half of the year. At about $66 a barrel, crude prices remain below the levels needed by the kingdom, and most other OPEC members, to cover government spending.
Saudi Arabia, OPEC’s biggest member, is cutting output by significantly more than required under the accord. Having reduced production by 100,000 barrels a day in February to 10.1 million, the kingdom’s rate of compliance stands at 166 percent.
Nevertheless, about 250,000 barrels of February’s output reduction came from members exempt from the supply accord.
Venezuela suffered the biggest decline, losing 160,000 barrels a day to 1.07 million a day, the lowest since a labor strike virtually shut down the country’s production in 2003. The U.S., Venezuela’s biggest oil customer, is banning imports as Trump accuses President Nicolas Maduro of fraudulently clinging to power, and gives backing to Maduro’s political opponents.
Iran saw the next-biggest reduction, declining by 90,000 barrels a day to 2.65 million, the lowest since 2013. The U.S. re-imposed sanctions on Iran’s oil trade late last year after Trump abandoned an accord with the Islamic Republic relating to its nuclear program.
Those unintended declines, along with bigger-than-necessary curbs in the Gulf states, are offsetting slow compliance elsewhere in the group. Iraq has implemented less than a quarter of its targeted cutback, while Nigeria — which recently started a new oil field — has increased production.
The commitment among OPEC’s allies, the 10 non-members who have partnered in the supply accord, has also been erratic. Russia, the biggest of these partners, is cutting output more slowly than it promised in December.