We estimate that OPEC production rose marginally m/m in November to 32.66 mb/d, up y/y by 0.10 mb/d. Compliance with the OPEC/non-OPEC deal fell to 144%, from 152% in October. Compliance excluding Venezuela fell to 69% in November, from 77% in October.
Saudi Arabia and the UAE hiked production in anticipation of US sanctions on Iran. Saudi output reached a record high of 11.1 mb/d, up m/m by 0.40 mb/d, and significantly above its November 2016 production quota (i.e. negative compliance). The UAE boosted production m/m by 0.19 mb/d to 3.22 mb/d (negative compliance) and plans to raise December output to 3.4 mb/d. Minor output gains were also recorded in Venezuela, Iraq and Qatar.
Unsurprisingly, Iran saw the largest m/m decline, following the re-introduction of US sanctions. Its output fell m/m by 0.50 mb/d to a record low 2.5 mb/d. In Libya, production went down m/m by 90 thousand b/d to 1.0 mb/d, as bad weather in late November reduced exports and therefore production. Smaller declines were recorded in Angola and Kuwait.
The average of third-party estimates we collect shows OPEC output rising marginally to 33.09 mb/d in November, with compliance falling to 109% (from 112% in October). The main differences were Iran, as third-party estimates placed output at 3.02 mb/d (above our estimate of 2.5 mb/d), and Iraq—third-party numbers show a 60 thousand b/d m/m decline to 4.6 mb/d, while we estimate a marginal increase to 4.58 mb/d as Kirkuk flows to Ceyhan resumed.
Following the new OPEC+ deal that was agreed in Vienna in early December, we now expect total production to average 31.8 mb/d in 2019, down from 32.5 mb/d this year. Every OPEC member will cut output by 2.5% from October 2018 levels, while Saudi Arabia and UAE will be cutting by more to compensate for Iran, Libya and Venezuela (combined 0.14 mb/d cut) who have been exempted. OPEC crude output should fall by around 1 mb/d q/q to 31.6 mb/d in Q1 19 and stay at that level in Q2 19, mainly due to the core Middle Eastern members trimming output. Should Saudi Arabia lean on the UAE to comply fully, OPEC production could be even lower. We assume that OPEC members will comply with the new quotas in H1 19, but in H2 19 we factor in a gradual increase in production from OPEC members, whether or not the deal is extended, as they will adjust their stance based on evolving market fundamentals—namely, Iran’s output and the strength of global demand. For now, we assume that OPEC production will rise to 32 mb/d in Q3 19 and 32.1 mb/d in Q4 19, with Saudi output averaging 10.7 mb/d, the UAE at 3.3 mb/d and Kuwait at 2.8 mb/d. Between them, that would leave spare capacity at around 0.5-0.6 mb/d, leaving enough room to raise output further should the need arise.