Based on the latest S&P Global Platts OPEC survey, the producer group’s compliance with its pledged oil output cuts is 98.5%.
It is also 111.5%.
At the same time, it is 71.9%.
Depending on how compliance is measured, the oil market is getting different impressions of how closely OPEC is sticking to its much-ballyhooed deal, as barrel counters among the news media and various international agencies do not appear to have any standard agreed methodology for their calculations.
DIFFERENT METHODOLOGIES YIELD WIDE VARIATION
The fuzzy math has many OPEC watchers dubious over whether the pact is succeeding in its goal of accelerating the market’s rebalancing.
As early reports of OPEC production under the deal came out in February, the market seemed generally impressed that the promised output cuts were indeed happening.
Petromatrix analyst joked in a recent note about news headlines trumpeting “OPEC’s compliance reaching a level that would make a North Korean leader jealous.”
Since then, the market has reversed course, as news of stubbornly bloated US inventories have sowed doubt about the effectiveness of the OPEC agreement.
To a man, OPEC ministers have touted that adherence to the deal is robust.
Kuwaiti oil minister Essam al-Marzouq on Thursday declared that OPEC compliance was a staggering 140% for February, according to a report by his country’s official Kuna news service. The report, however, did not provide any details or breakdowns of members’ output levels, beyond Marzouq crediting “deep production cuts” by Saudi Arabia.
Compliance among the 11 non-OPEC countries that have pledged to cut output in concert is much lower, perhaps only 50%, by some accounts, though OPEC has tried to spin this positively by saying it expects that percentage to move higher in the coming months.
In that spirit, a brief OPEC press release following a February 22 technical meeting of the deal’s monitoring committee—which Marzouq chairs—cited an 86% compliance level by both OPEC and non-OPEC participants, without mentioning any specific production figures.
Different definitions of compliance appear to be muddying the picture. OPEC itself has not disclosed how it measures compliance, and because the deal is complex, calculating it is not straightforward.
The deal calls for OPEC as a whole to freeze production at 32.5 million b/d. Under that ceiling, 10 countries are given individual allocations that represent a combined cut of 1.259 million b/d from the reference October levels, while Iran is allowed a slight 90,000 b/d rise in production. Libya and Nigeria are exempt from any cuts.
Some compliance calculations only take into account the 10 OPEC members obligated to reduce output.
Based on that metric, the Platts OPEC survey—one of six secondary sources used by OPEC to monitor output—found that over January and February, those members achieved 98.5% of their obligated cuts, up from 91% in January.
Bloomberg, which is not one of OPEC’s secondary sources, cited a compliance figure of 83% in January for those 10 countries in its own survey of OPEC production.
If Iran is added to include all of the members that have a quota under the deal, compliance would rise to 111.5%, based on the Platts survey, since Iran’s output remains 63,000 b/d below its allocation and the overall level of required OPEC cuts would fall to 1.169 million b/d to account for its allowance to raise production.
The International Energy Agency, also one of OPEC’s secondary sources, has cited 90% compliance for January using this definition. It reports its February figures Wednesday. Likewise, Reuters, not an OPEC secondary source, has tallied 94% compliance for February under this rubric in its survey.
But adding in Libya and Nigeria to adjudicate compliance of the entire cartel, OPEC is some 328,000 b/d above its declared 32.5 million b/d ceiling under the deal, according to the Platts survey. That works out to 71.9% compliance.
Bloomberg, which has also calculated compliance under this methodology, wrote that OPEC was “only about 70% of the way” towards ramping production down to its ceiling, up from 60% in January.
Graham Walker, an oil market analyst with consultancy Petrologica, said OPEC’s overproduction relative to its ceiling is the main metric that the market should use to judge how the deal is affecting fundamentals.
Saudi energy minister Khalid al-Falih’s recent comments at the CERAWeek conference that his country would not tolerate “free riders” on the deal “show that individual compliance matters politically, but the ceiling is what matters most for supply and demand,” said Walker, who pegs OPEC compliance by that metric at 71%.
Marzouq will host a meeting of the monitoring committee in Kuwait on March 26 to review the compliance data and decide on next steps. Besides Marzouq, the monitoring committee is composed of ministers from fellow OPEC members Algeria and Venezuela, along with non-OPEC Russia and Oman.
At last month’s IP Week conference, OPEC Secretary General Mohammed Barkindo said it was “so far so good” on compliance, but that there was room for improvement.
“We are confident that all member countries, with no exception, will implement their obligation 100%,” he said.