We estimate OPEC recovered m/m by a marginal 30 thousand b/d to 29.89 mb/d in June. Compliance with the OPEC+ agreement slipped again, but at 109% remains above the target on a group level, largely because of over-compliance by Saudi Arabia (212% compliance).
Nigeria led the m/m increase, with output recovering by 0.14 mb/d to 1.88 mb/d in June as disruptions to loadings of the Amenam, Bonny Light and Forcados grades caused by several pipeline outages eased. Nigeria produced well above its quota in June (-268% compliance), and we expect this to continue, with Total’s 0.2 mb/d Egina field hitting full capacity and loading programmes showing exports rising over July and August. UAE production also rose m/m, by 30 thousand b/d, to 3.09 mb/d in June (81% compliance)—a much smaller increase than the rise in exports, which jumped to record levels on some one-off destocking and refinery maintenance. Libyan output rose by 40 thousand b/d to 1.04 mb/d, but the gains were capped by a fire at the 30 thousand b/d Sarir field and further pipeline maintenance in the Sirte basin.
The increases were largely offset by a substantial drop in Iranian output (lower m/m by 0.15 mb/d to 2.30 mb/d) as US sanctions forced production shut-ins now that onshore and floating storage is largely full. Since US waivers expired at the start of May, Iranian exports have fallen further than we expected, largely due to caution among Chinese buyers. As a consequence, we now expect Iranian production to fall to 1.90 mb/d in Q4 19 and 1.81 mb/d in 2020. We estimate Saudi production fell m/m by 50 thousand b/d to 9.95 mb/d (212% compliance), as the direct communication figure (9.78 mb/d) once again understated actual production levels.
The average of third-party estimates we collect show OPEC output falling m/m by 0.11 mb/d to 29.87 mb/d (128% compliance). One main source of divergence is Saudi production, which third parties show rising m/m by 60 thousand b/d to 9.81 mb/d (256% compliance), as several estimates closely followed the understated direct communication numbers for May and June.
We expect OPEC production to remain broadly flat m/m in July as further declines in Iran are offset by small gains across several countries. Now that OPEC has agreed to extend the production agreement for nine months until end-Q1 20, we have revised down our forecasts for this period. We assume OPEC will produce 29.8 mb/d on average over H2 19 and 29.9 mb/d in Q1 20 before production rises to almost 30.9 mb/d for the rest of 2020. This assumes the deal is not extended again, which is by no means a certainty, especially as OPEC has now officially adopted the lower 2010-14 OECD inventories measure as a target for achieving market balance.