Non-Opec compliance with oil output cuts will improve over the next two months with Russia driving the largest reductions in volume terms, BMI Research has said in a report.
Kazakhstan is likely to continue to exceed its quota given strong output from the Kashagan field.
Non-OPEC countries participating in the output cut have been lagging behind their Opec counterparts in terms of compliance over the first three months of the five month agreement. Opec compliance has averaged more than 100% during Q1, 2017, primarily due to Saudi Arabia.
With Non-Opec countries contributing one third of the overall 1.8mn bpd cuts, the poor level of compliance has been a drag on its effectiveness, the Fitch Group company said.
“This being said, with natural declines from countries such as Mexico and Azerbaijan, making up a sizeable portion of the cut, poorer compliance at the beginning was somewhat expected,” BMI said.
Overall, non-Opec compliance improved significantly in March achieving 64%, the highest so far surpassing the poor January and February levels of 47% and 38% respectively.
Poor compliance in the first few months was somewhat anticipated with the largest contributor, Russia, signalling that it would achieve its allocated reduction gradually by the end of April.
Monthly supply data from the International Energy Agency (IEA) indicates that in March, Russia reduced its production by 174,000 bpd from the baseline, achieving 58% of its 300,000 bpd target. Russian Energy Minister Alexander Novak stated that Russia would have reduced output by 250,000 bpd by mid-April and reach its full quota by the end of the month, suggesting that the overall compliance will improve again in April and May.
While Russia has been improving its compliance over the last three months, Kazakhstan has been slipping. The IEA data for March shows Kazakhstan produced 35,000 bpd over its allocated quota, which is again from the 28,000 bpd it was over in February.
Kazakhstan’s Energy Minister, Kanat Bozumbayev, has hinted that output could exceed the quota for the next two months and has attributed excessive production in February and March to seasonal factors.
However, the most likely explanation is the ramping up of production from the massive Kashagan field, which is operated by an international consortium, and is not likely to be bound by any quota limits, BMI said.
Kashagan output started in October 2016 had reached 180,000 bpd by January and is targeting 370,000 bpd by the end of 2018.
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