OPEC output fell 140,000 barrels/day in March: survey Filed: 04/06/2000

By Ken Miller c.2000 Bloomberg News

New York, April 5 (Bloomberg)  OPEC oil production fell 140,000 barrels a day, or 0.5 percent in March, as lower output from Iraq masked production gains from other members, a Bloomberg survey showed.

The overall drop came as a yearlong output-cutting agreement among all members except Iraq expired. The Organization of Petroleum Exporting Countries produced 26.54 million barrels a day in March, down from a revised 26.68 million in February, according to the survey of producers, oil companies and analysts.

Output from the 10 members involved in the production agreement rose 230,000 barrels a day last month. That put their compliance with the 4.3 million barrels a day in cuts pledged in March 1999 at 68 percent, down from a revised 74 percent in February. A Bloomberg survey last month pegged February compliance at 76 percent.

The March output levels were "surprising," said Nauman Barakat, vice president of global energy trading at ABN Amro Inc. in New York. "I would have thought there was more cheating."

Crude oil prices had tripled by early March from December 1998 levels, as the reduced exports from OPEC, which pumps two out of every five barrels worldwide, forced consuming nations to draw supplies from inventories. Prices have slumped 26 percent since the March high on expectations for more oil from OPEC.

Iran Demurs

Nine OPEC members agreed in Vienna last week to raise output quotas by 1.452 million barrels a day starting April 1. Iran, which was party to last year's agreement, didn't go along with this year's accord. Even so, Iranian oil officials said the country would boost production anyway to preserve market share. OPEC had offered Iran a 264,000 barrel-a-day quota increase.

Iraqi output dropped 370,000 barrels a day last month, which more than offset a 70,000 barrel-a-day increase from Saudi Arabia, and smaller increases from Iran, Kuwait, the United Arab Emirates and others.

Oil flow from Iraq is often erratic. Its exports are administered through a United Nations program that uses the revenue to buy food and medicine.

Complaints from Baghdad that a lack of spare parts for its war-damaged infrastructure threatened to impede its output ability have conflicted with recent projections from its oil ministry that production will rise by 700,000 barrels a day by early May.

Iraqi Increase

Should Iraqi output bounce back by about 300,000 barrels a day in April and May, the extra oil would come at the same time as increases from other OPEC members under their new quotas.

The 10 OPEC members involved in last year's agreement pumped 1.4 million barrels a day more than their target allowed during March. Although the level of "cheating" may diminish under the new, higher quotas, it's unlikely to disappear, analysts said.

If the OPEC nine plus Iran adhere strictly to the new quotas, it would imply an increase of about 300,000 barrels a day from current levels.

Another 300,000 barrels daily could come from non-OPEC nations cooperating with OPEC, including Mexico and Norway.

Altogether, there's the potential for a rise in the range of 1 million barrels a day, although some of the increase may not be seen until later in the year. The supply/demand situation will be reviewed at another OPEC ministerial meeting June 21.

The 1.7 million barrels a day of added OPEC production, assuming Iran takes its full share, would restore over one-third of the production cuts by the group over the past two years. Output targets still would be about 2.6 million barrels a day below levels in February 1998.

Most to the U.S.

The lion's share of the new supply is expected to go to the U.S., where inventories are lower than elsewhere.

All OPEC members shared in the March rise, except Iraq and Nigeria. Persian Gulf producers  which include those with the largest spare capacity  made the largest increases.

State oil companies in Saudi Arabia and Iran started reallocating April tanker loadings, with the Saudis asking long-term contract holders to buy 7 percent more. Buyers will be advised April 11 of their new allocations.

Iran is using some oil previously stored in tankers moored offshore to speed early supplies to market, with some 5 million barrels estimated to be earmarked for such sales.

In Nigeria, output from the largest operating group, Royal Dutch/Shell Group, dropped from February's 805,000 barrels daily to 789,000 in March. Shell said an oil pipeline breach at mid-month forced a 40,000 barrels daily reduction in flow to its Forcados terminal, which continued into April, although exports were unaffected.

Bidding started March 1 on 22 oil blocks, including 11 in the much sought-after offshore sector, as part of the government's effort to raise production. Nigeria shipped 630,000 barrels a day of oil to the U.S. last year, making it the third-largest OPEC supplier to the U.S., after Saudi Arabia and Venezuela.

Venezuelan Bind

Though most major OPEC suppliers have sufficient spare output capacity to cover the expanded production targets, Venezuela may soon be bumping against its capacity ceiling, due to spending limits over the past two years. March output was gauged at 2.82 million barrels daily.

Oil minister Ali Rodriguez said in a Caracas newspaper interview that OPEC's third-largest producer does not have the short-term capability to pump more than the 125,000 barrels daily of extra oil permitted under the latest quota accord. Additional flow would "take a little more time," the minister said.

Revised Bloomberg estimates in the wake of the new quota agreement put Venezuela's capacity at between 2.95 and 3.05 million barrels daily, down from 3.4 million barrels daily in 1998. The change was ascribed to budget restrictions on the state oil company.

The following table shows Bloomberg estimates of OPEC output for March and February, the official OPEC targets for each country, the percentage adherence to promised reductions, new targets effective from April 1 and the original February 1998 baseline from which cutbacks were calculated. Output estimates are given in thousands of barrels per day.

Bloomberg Estimates OPEC Figures

% Cuts Target Target Baseline

Output Output Made Until From Output

(Mar) (Feb.) (Mar) Mar.31 Apr.1 (Feb98) Saudi Arabia 7,840 7,770r 69% 7,438 8,023 8,748 Iran 3,510 3,470 73% 3,359 3,928 Venezuela 2,820 2,800 85% 2,720 2,845 3,370 Iraq 2,200 2,570    1,688 U.A.E. 2,160 2,120r 58% 2,000 2,157 2,382 Kuwait 1,970 1,930r 64% 1,836 1,980 2,205 Nigeria 1,960 1,980 80% 1,885 2,033 2,258 Indonesia 1,290 1,280 47% 1,187 1,280 1,380 Libya 1,380 1,370 32% 1,227 1,323 1,453 Algeria 760 750 79% 731 788 868 Qatar 650 640 47% 593 640 700 OPEC Total 26,540 26,680r    28,980 OPEC-10 24,340 23,110r 68% 22,976  27,292 (OPEC-10 excludes Iraq, which is not participating in cuts.) (r: indicates revision to estimate.) ( Iran did not agree to a new target from April 1, 2000, though it is generally assumed it will act as if it had a new target of 3.623 million b/d, which would bring the new OPEC-10 target to 24.692 million b/d.)

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-- Martin Thompson (mthom1927@aol.com), April 07, 2000