Energy Sector Update for 02/22/2018:

The OPEC Secretariat in Vienna lauded the discipline of its members and their 10 non-member allies, citing last month's target-beating output cuts that have helped push up oil prices by more than one-third since last June.

But a closer look shows the group fraying at the edges and the statement Thursday by the Opec/non-Opec Joint Ministerial Monitoring Committee noted that "performance was not uniform and that conformity was boosted by several over-performing countries."

The group of 14 Opec members and 10 non-members, led by Russia, agreed starting in January 2017 to cut a total of 1.8m bpd from their combined output. Overall, that target has been met or exceeded since the, last month reaching 133% of the target.

But Saudi Arabia has been bearing by far the heaviest load, with January's output 560,0000 bpd below baseline, or 118% of its commitment. Second is Venezuela, which unwittingly is running at compliance of 481%, or a cut of more than 460,000 bpd vs 100,000 bpd commitment, because its industry is crumbling from neglect under the regime of President Nicolás Maduro.

Within Opec, the biggest cheater is Iraq, with compliance running at 34% last month, according to "secondary sources" (tanker tracking analysts, etc.), which is the reference agreed by the group. Plus, as discussed here yesterday, it is boosting fuel oil exports, which used to be blended into its crude stream, by 100,000 bpd. (Gabon has a lower compliance level at 22% but its output is a meager 200,000 bpd vs Iraq's 4.5m bpd.)

In the non-Opec group, Russia was at 88% last month but the next two largest participants -- Kazakhstan and Azerbaijan -- were essentially ignoring their modest commitments, with Azerbaijan at 3% and Kazakhstan at MINUS 720%. The overall 88% non-Opec compliance was due almost entirely to Russia and is flattered by a situation in Mexico which, like Venezuela, is not voluntary. Mexico's declining output has meant a cut last month of 290,000 bpd from baseline to 2.1m bpd, which is a cut nearly threefold more than its agreed target. Conformity among other non-Opec members averages 24%.

Saudi Arabia and Russia have touted making the Group of 24 a long-term arrangement, but excluding the 760,000 bpd cuts that are due to crumbling Latin American industries, as well as countries exempt from or ignoring commitments, and basically the effort is one supported only by Saudi Arabia and its closest Gulf allies, UAE and Kuwait, with Russia's tepid somewhat support.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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