Whether you call it liberation or special dispensation, Iran, Libya and Venezuela are relieved of the pain of cutting production under the latest OPEC agreement, forged today with the help of non-OPEC Russia.
The real reasons for the exceptions may never be known, but one thing is certain: Iran, Libya and Venezuela have seen difficult times in 2018 and are likely to see even more difficult times next year.
The official line is that Iran and Venezuela are released because they are still under sanctions in the United States – Iran on the nuclear deal and Venezuela for the destruction of democracy and human rights violations. To ask them to consciously reduce production, it will be a big demand.
Libya has been omitted due to its chronic production interruptions.
Nigeria, though she was shaken by instability in its oil industry, did not get a release this time.
The United Arab Emirates Energy Minister, Suhail Maruei, said today that as these three members were released, the remaining members would have to cut further. As it is today, OPEC has agreed to reduce a total of 800,000 barrels, while non-OPEC, which includes Russia with a large mass, will cut 400,000 barrels.
The baseline for production cuts is October 2018, and as the last round of cuts, it is assumed that the OPEC Compliance Committee will be committed to adherence. But when it does so, it will not consider the production of Libya, Iran or Venezuela to be excluded, which could theoretically be higher than the October volumes.
This is an important distinction, as Venezuela has just signed a deal of $ 5 billion and Russia no less, which will lift oil production in Venezuela by 1 million barrels if we believe that the troubled Latin American state can do so do.
Iran, which is expected to suffer under US sanctions so far, is doing better than most would expect, thanks to the refusals granted to eight of its clients. As a result, at least until now, signs do not show a huge drop in production leading to sanctions. In October, according to OPEC's MOMR, Iran's production amounted to 3.3 million barrels in October. Iran's production has reached 3.8 million in the past, so the capacity is there as far as customers are concerned.
Saudi Arabian production in October was by no means surprising. In fact, a new high of 10,630 million barrels. Al Falih, although he did not provide figures for the production of individual members, said the production volume of Saudi Arabia would be 500,000 barrels. This would bring them closer to 10.1 million barrels, which was exactly their average value in the second quarter of 2018 and well above the average for the first quarter of this year.
Production cuts will be in effect from January 1, though they are not expected to be released on that day. Russia, for one, is not expected to achieve its promised cut for "months" according to Alexander Novak.
By Julian Geiger for Oilprice.com
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