We estimate OPEC production fell m/m by 0.17 mb/d to 29.73 mb/d in July. Average compliance with the OPEC+ agreement rose to 116%. Output is now more than 2 mb/d lower y/y, though this is on a high base due to a ramp-up in OPEC production over summer 2018.
Saudi Arabia cut production by 0.13 mb/d m/m to 9.82 mb/d in July, raising compliance to 252%. In response to falling oil prices, Saudi officials are issuing increasingly frequent statements about keeping production low despite high demand from buyers, but these headlines lack credibility in our view. Our July figure is above the 9.6 mb/d that Saudi officials have communicated to the market, which is likely to emerge as the July direct communication number. We expect Saudi production to remain above 9.8 mb/d over the rest of Q3 19, despite the recent statements by unnamed Saudi sources suggesting lower levels. Iranian output fell m/m by another 0.12 mb/d, to 2.18 mb/d, as loadings slowed again and spare storage capacity gets closer to running out. We expect Iranian output to fall below 2 mb/d in Q4 19 as these trends become even more pronounced. Libyan output slipped by 20 thousand b/d to 1.02 mb/d due to a fire at the 30 thousand b/d Sarir field and two shutdowns of the 0.3 mb/d Sharara field. The second Sharara outage continued until the field restarted on 8 August, which will weigh on August production.
The largest m/m gain came from Venezuela (+50 thousand b/d to 0.74 mb/d) as PDVSA has managed to stabilise output somewhat and has begun repurposing upgraders as blending plants. UAE output crept up by another 10 thousand b/d to 3.10 mb/d (71% compliance). Emirati exports were extremely strong in June and July, boosted by destocking and refinery outages, and we understand ADNOC is offering more Murban cargoes in an effort to establish the grade as a regional pricing benchmark. As a result, we expect UAE production to drift upwards, reducing compliance, although increases will be modest while the OPEC+ agreement remains in place.
The average of third-party estimates we collect puts OPEC production lower m/m by 0.23 mb/d at 29.69 mb/d in July (140% compliance). Third parties have lower estimates for Saudi Arabia (9.71 mb/d) and the UAE (3.07 mb/d), but a higher figure for Libyan production (1.12 mb/d).
Iranian production continues to fall, Saudi Arabia is determined to keep its output in check, and disruptions are weighing on supply in several other member countries. As a result, we expect OPEC output to fall below 29.7 mb/d in both August and September. Even in Q4 19, the modest recovery we expect—up to 29.8-29.9 mb/d—assumes Saudi Arabia starts to produce above 10 mb/d, which it will only do if demand and oil prices justify an increase. Low OPEC production will continue to contribute to the tight crude supply picture through the year and into 2020.