We estimate that OPEC production rose m/m by 50 thousand b/d to 31.84 mb/d in May, from 31.79 mb/d in April. Compliance with the OPEC/non-OPEC deal declined to 161%, compared with a record high of 182% in April. Excluding Venezuela, compliance averaged 112% in May.
The main driver of the m/m increase was Saudi Arabia, where output rose by 0.16 mb/d to 10.03 mb/d (106% compliance) in May. As a result, the Kingdom was able to raise exports to a 14-month high, especially as it is burning more fuel oil and backing out crude from power generation this summer. Algeria’s output also rose m/m, by 40 thousand b/d to 1.05 mb/d (78% compliance), while Iraqi production gained by 30 thousand b/d to 4.41 mb/d (72% compliance), as the former completed upstream maintenance and the latter lifted export capacity constraints. Pipeline disruptions reduced Nigerian output m/m by 0.14 mb/d to 1.68 mb/d in May, while Venezuelan production fell by 20 thousand b/d to 1.39 mb/d (713% compliance).
The average of third-party estimates that we collect put OPEC production lower m/m by 30 thousand b/d at 31.89 mb/d, with compliance at 159%. While third-party estimates for Saudi Arabia in May match ours, our m/m increase was larger due to a lower April output figure.
We expect OPEC and Russian production to rise by up to 0.5 mb/d in H2 18 vs H1 18 as producers respond to tightening market conditions, although this may not be formally announced at the OPEC meeting on 22 June. Member states with limited spare capacity may resist increases, although these barrels will be needed to make up for losses in Venezuela and Iran.
In our 2019 balances, published this month, we forecast that OPEC production will rise to 32.3 mb/d, from 32.1 mb/d in 2018. The bulk of the increase will come from Saudi Arabia, which will raise output by 0.48 mb/d to 10.51 mb/d in 2019, and Kuwait, which will add 0.15 mb/d to bring production to 2.89 mb/d. We also expect Iraqi production to grow by 0.21 mb/d to 4.66 mb/d, and for Nigeria and Angola to grow output by 0.12 mb/d to 1.98 mb/d and 70 thousand b/d to 1.63 mb/d, respectively. But there are downside risks to these forecasts, particularly as capacity additions in the three countries remain vulnerable to technical problems, steep natural declines, project delays and political risks. Moreover, declines from Iran and Venezuela will offset most of these increases. We expect Venezuela’s oil production to fall by 0.34 mb/d to 1.03 mb/d in 2019, as underinvestment, US sanctions and legal problems continue to cripple the oil industry. US sanctions will force Iran to cut back output by 0.66 mb/d to 3.04 mb/d, but losses could be even steeper if the US administration announces more aggressive cuts for Iran’s oil exports.