We estimate that OPEC production was marginally higher m/m (+80 thousand b/d) at 29.98 mb/d in April, which was the first increase since November 2018. In y/y terms, output was down by a sizable 1.55 mb/d. However, compliance with the OPEC+ deal rose to 136% in April, from 125% in March, as core OPEC producers continued to overcomply with their targets, while production gains were concentrated in Libya and Venezuela, which are not bound by the output agreement.
The largest m/m increase was recorded by Libya, where output was up for the third straight month, this time by 0.14 mb/d to 1.06 mb/d. Output continued to recover on the back of the resumption of operations at the 0.30 mb/d Sharara oilfield, which has been closed until March, and remained unaffected by military clashes around Tripoli. Venezuela also recorded a m/m increase, of 80 thousand b/d, as the authorities managed to somewhat improve power supply across the country. However, we expect a decline in May, after the US tightened sanctions on Venezuelan crude exports, extending their scope to non-US entities. Iraq’s production increased m/m by 30 thousand b/d to 4.58 mb/d (52% compliance).
The largest m/m decline was in Iran, where production fell m/m by 0.1 mb/d to 2.5 mb/d. This fall was due to the US decision on 22 April to let sanctions waivers expire on 1 May, which pushed buyers to reduce their imports in the latter half of April. We expect Iranian production to gradually decline in the coming months, reaching around 2 mb/d by the end of the year. Exports will fall sharply from May, perhaps to even below our expectation of 0.6 mb/d, but Iran will fill onshore and offshore storage and raise domestic refinery runs to delay shutting in output. Kuwait also reduced its production m/m, by 40 thousand b/d to 2.68 mb/d (152% compliance), as it continued to overcomply with the OPEC+ deal. Saudi Arabia maintained its production m/m at 9.8 mb/d (259% compliance), but we expect Kingdom’s output to rise to 10 mb/d in May and 10.2 mb/d in June, which is still below their quota level.
The average of third-party estimates we collect shows OPEC output unchanged m/m at 30.17 mb/d in April. The main difference with our estimates was Saudi Arabia raising output m/m by 20 thousand b/d to 9.85 mb/d, while we estimate that output was unchanged m/m.
We expect total OPEC production to fall to 29.9 mb/d in Q2 19, after declining to 30.5 mb/d in Q1 19 as production in Venezuela and Iran goes down. Libyan and Venezuelan production will be the main wild cards, with rising political tensions in these countries potentially leading to further output drops. In Q3 19, total OPEC production should increase, reaching 30.8 mb/d as expectations of higher runs necessitate higher OPEC output.