We estimate that OPEC production fell m/m by 0.82 mb/d to 29.83 mb/d in March, the lowest level since May 2014. In y/y terms, output was down by a sizable 1.83 mb/d. Compliance with the OPEC+ deal jumped to 120% from 81% in February as core OPEC producers (led by Saudi Arabia) continued to overcomply with their targets to accelerate rebalancing in the oil markets.
Venezuela recorded the largest m/m decline as output fell by 0.66 mb/d to 0.54 mb/d following a series of nation-wide blackouts that crippled production, upgrading, blending and loading operations. We anticipate April production to decline further, given power has yet to be restored fully and only a few VLCCs have loaded so far this month. Saudi Arabia cut production m/m by 0.3 mb/d to 9.80 mb/d, taking compliance to a staggering 259% as the authorities continued to lead from the front by overcomplying with the Kingdom’s output target. While we expect Saudi Arabia to continue to overcomply in April, in his latest statements Energy Minister Khalid al Falih highlighted the ongoing rebalancing in the market and indicated the Kingdom would start to ease its zealous implementation of OPEC+ production cuts, so output should start to rise towards 10.3 mb/d from June. Iraq also cut output by 30 thousand b/d to 4.55 mb/d (73% compliance) to improve compliance with the OPEC+ deal, although it was helped by a series of loading disruptions at the Basrah terminal in March.
Libya was the only country that recorded a sizable m/m increase. Output was up m/m by 0.15 mb/d to 0.92 mb/d as operations resumed at the 0.30 mb/d Sharara oil field. In April, we expect production to increase to 1.06 mb/d as the ramp-up at Sharara goes on, despite the recent military escalation in the Tripoli area. We believe there is only a modest risk that military tensions in the Tripoli area could spread to oil-producing regions and affect operations. A small m/m output increase was also recorded in the UAE.
The average of third-party estimates we collect shows OPEC output falling m/m by 0.47 mb/d to 30.21 mb/d in March. Venezuela’s output fell m/m by 0.22 mb/d to 0.85 mb/d—this was a smaller m/m decrease than our estimate of a 0.66 mb/d m/m decline.
We expect total OPEC production to average 29.9 mb/d in April but 30.4 mb/d in Q2 19 as Saudi Arabia slowly reduces its overcompliance, just 0.1 mb/d lower q/q after the sharp decline recorded in Q1 19. Core OPEC members are likely to maintain production around current levels through April and May, as evident in extremely strong May OSPs. However, there is downside risk to our Venezuelan production estimates as power problems cripple upstream operations.