OPEC Faces U.S. Shale Challenge Ahead of Meeting

Reeling from the worst oil-market rout in a generation, producers controlling about 60 percent of the world’s supply came together last year determined to put an end to the global glut. Five months on, the historic deal has failed to drain inventories or sustain prices much above $50 a barrel after early gains brought output from U.S. competitors roaring back to life.

On Thursday ministers from the Organization of Petroleum Exporting Countries and its allies will meet in Vienna to decide whether to re-up. All producers participating in the deal agree on extending the cuts by nine months beyond their June expiry, according to Saudi Arabia’s Minister of Energy and Industry Khalid Al-Falih.

That may not be enough. OPEC’s own forecasts show it would need to double its cuts to clear the inventory surplus this year. While the group has impressed the market with unprecedented levels of compliance, the curbs will be harder to keep up if the deal is extended. Meanwhile Nigeria and Libya, two OPEC countries exempt from the cuts, threaten to undermine the accord as they restore lost output.

Following is the latest position of each OPEC country plus Russia. The respective shares of supply are based on April levels. Estimates for the price each member needs to balance its 2017 budget are from the International Monetary Fund unless stated otherwise.

Algeria

Price needed: $64.70

Share of OPEC production: 3.3%

Algeria burned through cash during the oil-price rout to plug a budget deficit, and has counted on the supply deal to restore prices. Energy Minister Noureddine Boutarfa, whose shuttle diplomacy helped bring about the agreement last year, has said that he backs a nine-month extension — and so do most signatories to the deal.

Angola

Price needed: $83.00 (RBC Capital Markets)

Share of OPEC production: 5.2%

Angola will find output cuts hard to sustain in the second half as new projects boost flows, Bloomberg’s Julian Lee writes. State explorer Sonangol canceled the sale of oil blocks this month because low crude prices make them untenable.

Ecuador

Price needed: $78.00 (RBC)

Share of OPEC production: 1.7%

Plunging prices for oil, Ecuador’s biggest export, and a devastating earthquake in 2015 prompted the country’s socialist government to pile on debt in recent years. President-elect Lenin Moreno campaigned on promises to boost spending further and will be counting on improved oil prices to avert a fiscal crisis.

Gabon

Price needed: $61.00 (RBC)

Share of OPEC production: 0.63%

Gabon reentered OPEC in the middle of 2016 and has ambitious growth plans — to more than double current production of 200,000 barrels a day by 2020. Its agreed cut, of 9,000 barrels a day, represents about 4 percent of daily production. The group’s smallest producer, Gabon depends on oil for about half state revenue.

Iran

Price needed: $51.30

Share of OPEC production: 11.8%

Iran was allowed to increase its output under the deal as it rebuilt from international sanctions that crippled its energy industry. Since sanctions over its nuclear program were eased in January 2016, production has climbed 34 percent, according to data compiled by Bloomberg. It stabilized this year, gaining less than 1 percent, the data show. The future is less clear since the election of U.S. President Donald Trump, who has adopted a more aggressive approach to the Islamic republic and threatened to tear up the nuclear deal. Iran will follow whatever OPEC decides on May 25, Oil Minister Bijan Namdar Zanganeh said May 6 in Tehran.

Iraq

Price needed: $54.30

Share of OPEC production: 13.8%

Iraq, which resisted a production target, has exceeded the 4.351 million-barrel-a day limit in each month of the deal, according to data compiled by Bloomberg. This month the country is on track for what may be the highest monthly crude exports in records going back to January 2015. Oil Minister Jabbar Al-Luaibi supports a six-month extension and says Iraq will abide with the curbs.

Kuwait

Price needed: $49.10

Share of OPEC production: 8.5%

Kuwait supports the nine-month extension, Oil Minister Issam Almarzooq said Tuesday. Along with its allies Saudi Arabia and the U.A.E., Kuwait has traditionally shouldered oil cuts.

Libya

Price needed: $71.30

Share of OPEC production: 1.7%

The OPEC nation with Africa’s largest crude reserves saw production crippled by civil war, but as the renewal decision nears, it’s been ratcheting up output. Libya is now pumping at the highest level in more than two years after restarting its biggest oil field, Sharara, and El Feel, also known as Elephant. Together with Nigeria, Libya is exempt from the curbs, but it’s unclear whether that would continue if the deal is extended.

Nigeria

Price needed: $127.00 (RBC)

Share of OPEC production: 5%

Nigeria, exempt from the cuts, has focused since January on reaching a negotiated settlement to end militant attacks on the country’s oil infrastructure so it can restore production. The 200,000 barrel-a-day Forcados pipeline is said to be fixed after a yearlong disruption. That alone may be enough to undermine efforts to clear a glut — the pipeline equates to about 17 percent of the OPEC cutback.

Qatar

Price needed: $52.90

Share of OPEC production: 1.9%

More dependent on natural gas than on oil, Qatar enjoys among the world’s highest per-capita GDPs. But its commitment to cut oil production combined with continued fiscal austerity is likely to slow growth this year, according to Bloomberg Intelligence Economist Mark Bohlund. It would gain from an agreement that boosts prices.

Saudi Arabia

Price needed: $83.80

Share of OPEC production: 31.2%

OPEC’s strong compliance was often attributable to the Saudis cutting more than they promised, making up for laggards like Iraq and the U.A.E. While bearing the heaviest burden, the Kingdom still gained from the deal. Oil revenue more than doubled in the first quarter, helping to narrow a budget deficit and allowing the government to reinstate the perks and bonuses to its citizens that it controversially withdrew last year. But maintaining production cuts will prove harder in the second half. Saudi Arabia typically boosts output in summer to meet local demand for air conditioning; keeping a cap on output would mean foregoing exports.

United Arab Emirates

Price needed: $67.00

Share of OPEC production: 9.1%

The Saudi ally exceeded quotas in the first months of the deal, but has promised to compensate as it cuts production to carry out maintenance through May. Energy Minister Suhail Al Mazrouei said May 10 the country will support an extension if everyone else does.

Venezuela

Price needed: $216.00 (RBC)

Share of OPEC production: 6.2%

Perhaps more than any other OPEC nation, Venezuela needs an extension. It gets almost all its export revenue from oil, and the price collapse three years ago left the economy reeling. The country reduced output more than any other OPEC member in the last year, and production is likely to keep falling — not because it’s adhering to the supply deal, but because foreign operators have fled and it doesn’t have the cash to keep fields working. The oil ministry said last week it supports the proposal to extend the cuts for nine more months.

Russia

Price needed: $40 (Figure used to calculate country’s 2017-2019 budget)

Continued backing from the world’s biggest crude producer is vital to the continuation of the deal, and the Kremlin has gained handsomely so far from its cooperation. The rally in prices boosted budget revenue from oil and natural gas above 500 billion rubles ($8.9 billion) in February for the first time in almost two years, Finance Ministry data show. However, oil companies such as Rosneft PJSC will find restraining output more painful going forward as planned projects must be put on hold.

Source: Bloomberg