The journey of the OPEC+ group to cut oil production began in January 2017 and lasted until the end of March 2020.
This entailed 39 months of collaborated efforts among 24 oil producers outside and inside OPEC.
It amounted to total output cuts of some 1.2 million barrels a day, where OPEC producers agreed to cut 800,000 barrels per day (bpd) and non-OPEC producers by 400,000 bpd. Within this, Saudi Arabia reduced output by 500,000 bpd and Russia by 230,000 bpd.
At the end of 2019, the agreement was amended to deepen the output cuts by 500,000 bpd to 1.7 million bpd through the end of March 2020.
Who then shouldered most of the burden of the OPEC+ production reduction?
Since the very start of the agreement, the Kingdom of Saudi Arabia has absorbed the lion’s share of the cuts.
It assumed more than 41 percent of the total OPEC cuts, even though its production share was just 31 percent.
Its motivation has always been to ensure the security of energy supplies and balance in oil markets for the good of the global economy.
Russia’s commitment to comply with the OPEC+ output cuts was shaky and questionable from the outset, as some resistance came from the Russian oil companies who tried to hinder these efforts.
Russia also claimed it was difficult to reduce production due to the harsh climate and geological conditions of many production areas during the winter season.
Production figures shows that on average, Moscow produced about 70,000 bpd more than it should under the OPEC+ agreement.
On the other hand, Saudi Arabia committed more than it needed to under the commitment compliance rates.
This over-compliance amounted to up to 185 percent in December 2019, when it produced 9.8 million bpd, while Russia’s commitment to reduce production was approximately 70 percent when it produced 11.2 million bpd.
When comparing the latest oil production data for the month of February 2020, we find that Saudi Arabia reduced its production by 180 percent at 9.7 million bpd while Russia reduced only 44 percent at 11.3 million bpd.
Russia’s commitment to comply with the OPEC+ output cuts was shaky and questionable from the outset
With all that leniency, Russia called for changing the method of measuring its production levels to exclude condensate before the December 2019 OPEC+ meeting. Condensate wasn’t originally considered in the output cuts, representing around 800,000 bpd of the total Russian oil production.
Even Russia’s compliance in the months of May, June, and July of 2019 was not voluntary but was due to the Druzhba pipeline oil-contamination crisis that pushed production below its OPEC+ target, after several European countries halted imports of Russian oil.
Has the US benefited from the agreement? The US was not a part of the OPEC+ journey but benefited the most from the efforts to balance the market and reduce the supply glut, which maintained oil prices at levels that helped the US shale oil industry to prosper.
This has led US oil production to rise from 8.8 million bpd in 2016 prior to the OPEC+ agreement to a record level of 13 million bpd after 39 months of the agreement, and the majority of this increase in production came from the Permian Basin, whose production rose from 2 million bpd in 2016 to more than 5 million bpd (exceeding Iraqi production).
Has the US threatened the OPEC+ market share? Average oil exports from the US have skyrocketed from 520,000 bpd in 2016 before the OPEC+ agreement to an average of 3 million bpd in 2019.
The overall increase in shale oil production went to export because it is not a desirable crude oil quality favored by US refineries.
However, shale oil producers were able to sell it at huge discounts to the Asian market where the majority of OPEC production is exported.