Following The OPEC Barrels
OPEC+'s latest surprise “voluntary” cut looks far more likely to actually reduce supplies vs October “papercut” effort—but stop overreading incredibly volatile weekly tanker export data.
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OPEC+’s ongoing enthusiasm for production cuts and market management are a critical component of current and future physical balances, especially as the latest cuts take effect and we enter what is generally believed to be a much tighter second half of the year.
OPEC+’s voluntary production cut appears well underway through the first three weeks of May, though early estimates putting the size of the month-to-date cutbacks near 2 MMbpd appear overstated—both due to ever present weekly data volatility and due to the implicit inclusion of non-participating members.
While early signs are promising, the market will need to see durable export cuts and confirming official production estimate reductions following disappointment with the lackluster follow through in November, especially given the chronically disappointing macroeconomic backdrop.
While current oil market sentiment is dominated by macro factors and recessionary fears, global crude accounting remains abnormally swayed by discretionary policy choices—from the SPR to Russian sanctions and price caps. Chief among these discretionary policy choices, at least as far as barrel-counting is concerned, is a durable enthusiasm within OPEC+ for ongoing production management. In fact, one of my very first Commodity Context posts outlined how OPEC+ controlled the COVID-era oil market thanks to the cartel’s unprecedented 2020 supply cut, which I noted then “surely spared the market from months of destabilizingly low prices that would have done lasting damage to the industry’s productive capacity”.
Nearly two years later, we're still trapped in a market dependent on OPEC+ support to maintain balance and supportive pricing. Between mid-2020 and late-2021, the market watched dutifully as OPEC+ production normalized off of those historic emergency COVID cuts. Then came a brief flirtation with OPEC+ production capacity constraints and the worry of unprecedented market deficits early last year. Now, the producer group has reverted to maintaining oil price buoyancy with sizable—and growing—production restraint following two cuts announced in October and, most recently, March.
Restraint remains a choice, however, and there continues to be open questions around how fully (certain) members will comply—and we certainly saw somewhat lackluster compliance through the October/November cut cycle. So far, the core of the original non-plus cartel, OPEC-10, is indeed already cutting back seaborne exports through May and, on a crude basis, now at their lowest levels since late-2021. In the most charitable reading of the data, OPEC crude-only exports have fallen a staggering 2 MMbpd, from 21.25 MMbpd in the final week of April to 19.26 MMbpd as at the end of last week—a number which has been frequently repeated across various media. However, we are still in the early days of this cut cycle and those public talking points appear, to me, overstated; seaborne exports are notoriously volatile (as seen in the chart above) and, while the trend is certainly declining, it remains to be seen how durable these latest cuts will prove to be at the end of the day.
Note: tanker export numbers in the chart above are total petroleum and thus include refined product exports; the same charts are displayed at the end of this report in crude export terms, along with a full OPEC-10 member-level breakdown.