OPEC cuts oil production, but more work needed to fulfill deal

LONDON (Bloomberg) -- OPEC cut output by 840,000 barrels a day last month, but has more work to do to fully comply with last year’s historic production deal. OPEC countries pumped 32.3 MMbpd in January, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. The 10 members of the group that pledged to make cuts in Vienna two months ago implemented 83% of those reductions on average, but their efforts were offset by increases from Iran, Nigeria and Libya that were permitted under the terms of the agreement.

Accounting for the members who raised output and the suspension of Indonesia, OPEC’s total output remains 550,000 bpd above the target set out in the Nov. 30 deal. That means the group as a whole is only about 60% of the way toward the production level it deems necessary to eliminate a global oversupply and boost prices.

Oil has fluctuated above $50/bbl since OPEC joined with 11 non-members in December to trim supply by as much as 1.8 MMbpd. While Middle Eastern producers from Saudi Arabia to Iraq have implemented cuts and Russia says it’s ahead of schedule with its own reduction, wary investors are also considering signs that U.S. drillers are taking advantage of higher prices to stage a comeback.

Saudi Leadership. Saudi Arabia, OPEC’s largest producer, led the January cuts with a reduction of 500,000 bpd, going below 10 MMbpd for the first time in almost two years. Its allies, the United Arab Emirates and Kuwait, followed by cutting a combined 310,000 bpd.

Production in Iraq, which tried and failed to secure an exemption from the cuts, declined by 120,000 bpd to 4.51 MMbpd. The Bloomberg News survey may vary from the independent estimates compiled by OPEC, known as the secondary sources, which are the basis of the accord.

Libya Increases. At the same time, OPEC members not required to make cuts added 270,000 bpd in January. Libya ramped up output to 690,000 bpd, the highest level in more than two years, as it reopened fields and export terminals that had been disrupted by conflict. Nigeria, also wracked by internal unrest, boosted production by 9.3% to 1.64 MMbpd. Iran, which was allowed to continue restoring output to pre-sanctions levels, pumped 3.8 MMbpd, the most since 2010.

OPEC’s agreement lasts for six months, with the goal of shrinking bloated oil inventories that are keeping a lid on prices. While the organization has the option to prolong the deal, some members, including de-facto leader Saudi Arabia, have said an extension may not be necessary.

OPEC is hoping to achieve 100% compliance with the pledged cuts, according to the Kuwaiti oil minister, who is chair of committee that monitors the agreement. In the last organized cuts in 2008, OPEC’s compliance rate stood at 70%, according to Hasan Qabazard, OPEC’s former head of research.

Russia, the largest of the non-members participating in the deal, curbed production by 117,000 bpd last month, Energy Minister Alexander Novak said Wednesday. Russia pledged to gradually reduce supply by as much as 300,000 bpd, more than half the total non-OPEC pledge for a 558,000-bpd reduction.