OPEC+ seaborne exports down 390 kbd in May as its output policy remains unchanged

Jun 03 2021


A new research and analysis note released by commodity intelligence company, Kpler, regarding OPEC+.

The volumes below reflect Kpler expectations of OPEC+ market supply reductions. They account for variation in exports, onshore inventories and refinery runs. These totals are not a proxy for production.

 

Kpler data shows OPEC+ seaborne oil exports decreased by 390 kbd to 24.8 mbd in May (excluding Iran and Venezuela as our estimates for these two countries may vary as we receve more information). The fall in exports does not necessarily reflect a production decline as both domestic consumption and onshore inventories have boosted in May. OPEC+ was supposed to increase production by 600 kbd over the month of May : this includes 350 kbd from OPEC+ and 250 kbd as Saudi Arabia eases its voluntary additional production cut.

 

OPEC+ inventories have built 8.1 mb to 338 mb on the month, or 260 kbd, suggesting that production has increased and that exports will increase in the next few months. The fact that such an increase in production failed to materialise in oil exports can also be explained by increased domestic demand. Refinery runs have boosted 11% and 5% in the UAE and in Saudi Arabia respectively, or 106 kbd and 128 kbd, according to FGE data.

 

While OECD oil inventories have drawn to levels last seen in August 2019, we estimate global oil inventories are still around 110 mb higher than pre-covid levels for the same time of the year, mainly due to China taking advantage of low oil prices to build storage.

 

The key upcoming issue for OPEC+ is likely to be Iran's potential return to the market. Today, the organisation took the decision to leave its output cut policy unchanged, meaning that production could increase by 700 kbd in June and another 850 kbd in July, when including Saudi Arabia's voluntary cut policy. With Brent now hovering above $70/bbl, the bullish trend in oil prices reflects confidence in the economic rebound, particularly in Europe's and the US ability to absorb additional barrels on the market due to the easing cuts OPEC+ policy and the breakthrough of Iran-US peace talks. 

 

Leaders Saudi Arabia and Russia boost exports, up 322 kbd and 136 kbd respectively

Saudi Arabia boosted its exports by 322 kbd m/m, reaching a total just under 6 mbd, the highest level of exports since January. Loadings destined to China have increased, 1.7 mbd of oil loaded in May is headed towards Saudi Arabia’s main customer, representing an 11% increase m/m. Russia’s exports also increased by 136 kbd m/m, should benefit from the upcoming economic recovery in Europe.

 

On the other hand, the UAE experienced the biggest drop, with exports down by 303 kbd but following a 243 kbd increase in April. However, this fall is to be put into perspective as the country's inventories built 3 mb to 39.6 mbd, or 97 kbd, while refinery runs jumped 106 kbd. 

 

OPEC Africa falls 470 kbd on unfavourable market conditions

On the other side of the export ledger, exports from many African countries have fallen. Departures out of Algeria (-136 kbd), Libya (-106 kbd), Gabon (-85 kbd) and Nigeria (-81 kbd) all contributed to a combined fall of 470 kbd from OPEC's African members. This seems to be due to specific unfavourable market conditions. With the market in backwardation, and particularly the prompt Dubai timespread’s backwardation widening, Asian refiners are incentivised to favour crude with shorter voyages, which plays in favour of Middle Eastern or Russian grades against African oil. Rongsheng Petrochemical reportedly purchased 12 mb of Middle Eastern grades in the third week of May only.

 

Another issue impacting West African grades is a massive jump in shipments out of Saldanha Bay storage, which comes as increased competition for WAF crudes. Although Kpler data does not show any shipments in May, 240 kbd of oil were shipped in April, primarily to India. This is up from 200 kbd in March and 70 kbd in February.

 

Indian demand could also help explain falling WAF exports despite an ability to increase production as per the OPEC+ agreement. Even as India is seeking to its oil supply - our data shows an overwhelming reliance on Middle Eastern oil, which provides 83% of India's total oil imports - the country was not able to do so in May. Consumption of refined products in India has contracted sharply: diesel and gasoline sales were down 20% in the first half of May. India's crude oil imports from OPEC+ fell by 331 kbd m/m in May, down to 3.2 mbd.

 

Return of Iranian oil key issue ahead

At the same time, while Iran-US talks have failed to deliver a breakthrough thus far, negotiations could potentially lead to the full return of Iranian in the coming month. This possible increase in Iranian supply could become an issue for OPEC+ as the organisation unwinds its cuts. It is too early for us to give a precise indication of Iran's oil exports in May, but the country's crude oil exports averaged 720 kbd between December 2020 and April 2021, marking a significant shift compared to 2020 levels. This compares to an average of 650 kbd in 2019 and 350 kbd in 2020.

 

 

Progress at the Vienna negotiations have not impacted oil markets yet as oil prices climbed for the second month in a row, driven by strong expectations on the demand side. Brent and WTI are at their highest levels since October 2018. However, as an agreement seems relatively close, we estimate Iran would be able to increase production by 1.7 mbd by Q1 2022, of which 1.4 mbd of crude and 300 kbd of condensate.

 



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