OPEC output surges 120,000 b/d in May despite quotas; Russia-led allies cut: Platts survey

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The nine OPEC members subject to quotas boosted crude oil output by 100,000 b/d in May, driven by Nigeria and Iraq, pushing the group 320,000 b/d above their collective targets, while the bloc's Russia-led allies cut production, the Platts OPEC+ survey from S&P Global Commodity Insights shows June 10.

With Russia, Kazakhstan and Mexico -- among the non-OPEC allies that formed OPEC+ in 2016 -- seeing cuts to output, the alliance's overall production slid 40,000 b/d month on month to 41 million b/d, the survey found.

The producers' alliance is battling to shore up the oil market amid surging production in non-OPEC+ countries like the US, Canada and Guyana, sticky inflation and weak economic indicators in China, the world's biggest crude consumer, making compliance with quotas a growing point of tension in recent months.

While the Russia-led allies reduced production by 160,000 b/d month on month in May to a four-year low, putting them 25,000 b/d below their collective quota, production among the OPEC nine rose from 21.45 million b/d in April to 21.55 million b/d in May. Iran, Libya and Venezuela are exempt from production quotas under the OPEC+ accord and collectively produced an additional 20,000 b/d in May.

Nigerian output was up 50,000 b/d month on month after four successive monthly declines driven by rampant crude theft and underinvestment, although the country remains below its 1.5 million b/d quota. Strong exports and supplies to the landmark Dangote refinery underpinned the rise.

Iraq boosted production by 40,000 b/d to 4.28 million b/d – 280,000 b/d over its current target – despite agreeing in May to compensate for overproduction. The Platts survey estimates current oil output in Iraq's Kurdistan region, over which Baghdad has scant control, at 210,000 b/d.

Non-compliant Gabon and the UAE also increased production slightly, leaving both 50,000 b/d over their respective targets. The UAE, which has a huge amount of spare capacity, recently won a quota increase that will be phased in slowly during 2025, highlighting internal competition within the group.

By contrast, Russia and Kazakhstan – which have also agreed to submit compensation plans – edged closer to compliance, cutting 50,000 b/d each, but remained above their targets. Russia, which has converted an export cut into a production one and is seeing its refineries come under increasing attack from Ukrainian drones, remains 191,000 b/d above its quota, according to the survey.

Kazakhstan's reduction followed maintenance at its critical Tengiz development.

Mexico, which is not subject to a quota, also helped reduce OPEC+ output, dropping 50,000 b/d due to declines in ageing fields, while damage to South Sudan's only export pipeline through Sudan kept tens of thousands of barrels offline.

Overproducers have until the end of June to submit plans to offset heightened output in the first half of the year. The OPEC+ alliance – formed in 2016 to wrest a larger market share – will then hold its next Joint Ministerial Monitoring Committee, which oversees the alliance's output, on Aug. 1.

Price weakness

News of strong production in May could spell greater tensions over compliance, with crude prices slumping after the OPEC+ ministerial meeting on June 2.

Platts-assessed Dated Brent fell by over $4/b in the three days after the meeting and was last assessed at $78.315/b on June 7, having edged up from five-month lows of $75.92/b on June 5.

During the hybrid meeting, which saw the eight countries making voluntary cuts meet in person in Riyadh and the rest of the group dial in virtually, ministers agreed to roll over 3.6 million b/d of group-wide cuts until the end of 2025 and 2.2 million b/d of voluntary cuts through September, after which they will be gradually eased, subject to market conditions. They also kicked painful discussions about production baselines – from which quotas are calculated – into late 2025. The last round of baseline talks led to Angola quitting the group in January.

OPEC+ had earlier moved the meeting from in-person in Vienna to online as the market impact of its aggressive cuts appeared to be waning.

Coming alongside increased non-OPEC+ production and weaker-than-hoped demand, which have weighed on prices, the market response illustrated the challenge faced by OPEC+.

Nevertheless, the alliance remains the swing producer, with roughly 40% of global production, and is optimistic about rising demand for its crude through 2025.

Total OPEC output among its 12 countries in May was 26.75 million b/d, according to the survey, up from 26.63 million b/d in April. The 10 Russia-led non-OPEC members of the alliance meanwhile pumped 14.25 million b/d.

Saudi Arabia, which has borne the brunt of output cuts since last year and is producing at levels not seen since the demand-sapping coronavirus pandemic, pumped 8.98 million b/d in May, unchanged from April and in line with its quota, the survey found.

The Platts survey measures wellhead production and is compiled using information from oil industry officials, traders and analysts, as well as by reviewing proprietary shipping, satellite and inventory data.

* includes estimated 210,000 b/d production in the semi-autonomous Kurdistan region of Iraq

Source: Platts OPEC+ survey by S&P Global Commodity Insights