February 8, 2019
Under the current OPEC+ deal, OPEC-14 agreed to cut 0.8 million bpd from the Oct-18 reference level of 32.7 million bpd. The resulting production target for 1H-19 is 31.9 million bpd. We find, however, that combined OPEC-14 production is likely to drop to 31.1 million bpd on average in 2019, significantly below its target of 31.9 million bpd. Our projection is based on the assumption that KSA, the UAE, Kuwait, and Iraq target their own quotas instead of compensating for Iran and Venezuela during 1H-19, and that OPEC+ production cuts are extended through Dec-19.
OPEC is able to balance the market if members stick to own quotas and deal rolled over to Dec-19. In the chart we take a closer look at the quarterly Year-on-Year OPEC-14 crude production forecast.
For Iran, we forecast production of around 2.8 million bpd from Jan-19 through Apr-19. We expect production to drop by another 265,000 bpd from Apr-19 to Jun-19 as we do not expect US waivers to be extended.
For Venezuela, we expect production to continue to decline, reaching 1.0 million bpd by Dec-19. However, uncertainty has increased both to the upside and to the downside with newly introduced US sanctions and a possible regime change.
For 1H-19, we expect KSA, the UAE, and Kuwait to comply 100% with their country quotas, while Iraq reaches full compliance by Apr-18. For 2H-19, we expect KSA, the UAE, Kuwait, and Iraq to compensate for additional losses from Iran, but still restrain output in order to balance the market.
Nigeria will struggle to comply as Egina ramps up forcefully. However, we expect Nigeria to restrict output from other fields in order to keep production fairly flat from Oct-18 levels. Libya struggles with El Sharara still being shut and no immediate restart in sight. In our risk-weighted base case, we see Libya producing 1.04 million bpd for 2019, compared with the 1.12 million bpd Libya produced during Oct-18. Output from the remaining OPEC members is largely driven by natural decline with limited upside, making output policy discussions less relevant.
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