How OPEC math arrives at its 800,000-barrel cutback share

LONDON • OPEC’s lack of transparency on how much its nations are supposed to be pumping has become almost infamous among oil traders, but last Friday the group eventually managed to provide a relatively comprehensible idea of its plans.

After its meeting in Vienna, the group announced a 1.2 million barrel-a-day (bpd) reduction for the OPEC and non-member allies such as Russia. The group itself will restrict 800,000 bpd and the others will remove 400,000 on top.

The group didn’t provide a detailed breakdown. The non-OPEC curbs will be trickier to measure since it’s less clear what level they’re supposed to cut from. However, we do know at least that OPEC members will mostly be reducing from October levels — likely with the exception of Kuwait — as measured by secondary sources and published in the group’s monthly report, set out below.

Initially, there was talk of 2.5% cuts shared across all the group’s members. On that basis, and using October as the baseline month, the cuts would have been 808,000 bpd — within a whisker of the pledged restrictions.

However, Suhail Mohammed Al Mazrouei, OPEC’s outgoing president, confirmed that Iran, Libya and Venezuela will be exempted. If you eliminate their portions from the calculation, the cutback would diminish to 669,000 bpd.

So what gives? During the final press conference last Friday, Maz rouei explained that some members may cut more than 2.5% to compensate for those that secured exemptions, and that OPEC as a whole will make sure its goal is met. He didn’t elaborate further.

For the 11 remaining OPEC members — those who aren’t exempt — the curbs will actually work out at 3%. That would imply a reduction for Saudi Arabia, of 319,000 barrels a day, taking its production level down to about 10.3 million barrels a day. A 3% cut for the 11 would take the group’s output down by 802,000.

Saudi Arabian Energy Minister Khalid Al-Falih said during the same press conference that his nation’s oil output will drop to about 10.2 million bpd in January. He also said his country could carry a bigger burden than others.

On a 3% basis, Iraq would cut production by 140,000 bpd — the exact amount that the country’s Minister Thamir Abbas Ghadhban said his nation will cut. — Bloomberg