OPEC has finally acknowledged what the oil market already knows, namely that rebalancing is taking longer than expected. Perhaps this is because OPEC is actually shipping more crude.
The Organization of the Petroleum Exporting Countries prefers to talk about output when assessing the impact of the deal among members and 11 allied countries to reduce production by 1.8 million barrels per day (bpd).
While output is no doubt important, for the immediate market impact it’s probably better to focus on what the group is actually exporting.
Vessel-tracking and port data in Thomson Reuters Eikon shows that for the first five months of 2017, OPEC exported 25.6 million bpd.
This figure is only shipments by tanker and is filtered to show vessels that have already discharged, are discharging or are en route to their destination.
The shipments for the first five months of this year are slightly higher than the 25.4 million bpd the producer group exported via tankers in the same period in 2016.
In May, OPEC shipments were 25.6 million bpd, up from April’s 25.02 million bpd, according to the vessel-tracking data.
OPEC exports in 2017 vs 2016
The increase in exports via tanker was also reflected in higher output by the group, which said in a report on Tuesday that it produced 32.14 million bpd in May, up 336,000 bpd from the prior month.
The increase was largely because members that are exempt from the output cuts agreed in November, such as Libya and Nigeria, increased production after prior curtailments due to civil unrest.
Nonetheless, the increase in output and exports via tanker show the scale of the challenge facing OPEC, and its de facto leader Saudi Arabia, the world’s biggest crude exporter.
The Saudis are carrying the bulk of the output reductions among OPEC members, and the shipping data suggest they are doing their part by lowering exports as well.
In the first five months of 2017 Saudi Arabia exported 7.48 million bpd via tankers, down 440,000 bpd from 7.92 million bpd in the same period in 2016.
This reduction in exports is close to the 500,000 bpd output cut pledged by the Saudis in terms of the November agreement, which was extended last month to March 2018.
SAUDIS STAND ALONE?
The problem for the Saudis is that it appears fellow OPEC members aren’t doing as much to help the cause of rebalancing oil markets and therefore boosting prices.
It’s the sort of situation that’s unlikely to persist, with the Saudis likely to demand more compliance from OPEC and the 11 allied producers, including Russia.
If the Saudis don’t see meaningful reductions in output and exports by its allies, it’s likely that they will be forced to scale back the extent of their output and export reductions.
The dilemma facing the Saudis is encapsulated by China, the world’s largest crude oil importer and the Saudis biggest customer.
China imported 12.5 percent more oil in the first four months of this year, but imports from Saudi Arabia rose by a paltry 2.5 percent.
In contrast, China’s imports from fellow OPEC member Angola jumped 13.3 percent and those from allied producer Russia gained 8.1 percent.
This shows that the Saudis are not only surrendering market share in China, they are partly giving it up to countries that are supposed to be joining the kingdom in output cuts.
In addition, producers outside the agreement to cut output are gleefully snaring increased market share in China. Imports from Brazil jumped 41.2 percent in the first four months of the year compared to the same period in 2016, making the South American nation China’s seventh-largest supplier.
While rising from small bases, it’s worth noting that China’s imports from Britain are up 245 percent and those from the United States 3,886 percent.
Taken together, these two non-traditional suppliers to China accounted for 3 percent of the country’s imports in the first four months of the year.
That may not sound like a lot, but it equates to about 260,000 bpd in British and U.S. exports to China.
The Saudis may well look at that figure and think that they should have supplied that crude to China, but they haven’t in the name of rebalancing the market.
It’s not like the Saudis are enjoying significantly higher prices, with Brent crude ending on Tuesday at $48.72 a barrel, perilously close to the $46.38 close the day before the Nov. 30 deal between OPEC and its allies.
It seems the Saudis have given up much to get little in return.