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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Clarifying Opec’s production ceiling agreement

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The oil market is well aware that  Opec set a production ceiling at its meeting on November 30th of 32.5 million barrels per day. But based on comments to a recent article I wrote, there is a lot of confusion about how that ceiling applies. A news story said, “Opec production dropped to 33.09 million barrels per day in December from 34.2 the previous month.” This is a misunderstanding of the situation. In particular, there is an issue about Indonesia. At the meeting, this member decided to suspend its membership in  Opec. As  Opec’s only net importer of oil, it could not agree to join the group in agreeing to limit its output, which is understandable. It could have signed the agreement anyway, as I believe some countries may have, not intending to honour the agreement, but it did not. To me, that reflects integrity.


But less than two months later, there is confusion about the ceiling. To clarify,  Opec included Indonesia’s production in the ceiling, even though it had suspended its membership in  Opec. I suppose that happened because the deal was negotiated on the day of the meeting, and there was a certain amount of chaos. “Indonesia is in it, at the October level.” According to  Opec’s December Monthly Oil Market Report, Indonesia’s production level was 750,000 b/d. In  Opec’s most recent MOMR,  Opec reported its production at 33.085 million barrels per day. But Indonesia’s production is no longer included. One might get the impression that  Opec’s production is getting closer to its 32.5 ceiling. But if Indonesia’s production is included, estimated to be 730,000 b/d by the Energy Information Administration (EIA), then the  Opec-14 actually produced 33.8 in December.


If  Opec is going to quote its output without Indonesia, which seems appropriate, it should clarify its ceiling without Indonesia. And that would be 32.5 minus 0.7, which is 31.8. And so the December volume is actually 1.3 million barrels above that ceiling.


[Robert Boslego – Seeking Alpha]


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