Expectations going into the OPEC monitoring meeting in St. Petersburg were low. The OPEC agreement to reduce output appeared to be fraying. June output appeared to have increased in several countries, and private sector estimates suggest output rose further in July. Russia expressed reluctance to extend the agreement further. Ecuador announced it would no longer participate in the output restraint. Hopes that Nigeria and Libya, who were exempt from the quota, would cap output were played down in recent days.  

 Initial reports suggest the outcome was better than expected. Saudi Arabia agreed to cut its output further and would limit its exports to 6.6 mln barrels a day. In the first five months of the year, Saudi Arabia exported 7.2 mln barrels a day. Reports suggested the kingdom increased its output by about 50k barrels a day, and many observers though this was in violation of its agreement. 

However, there are two important points. First, Saudi’s output cut was deeper than it had agreed to, so the small increase does not put it out of compliance. Second, Saudi Arabia is one of a few countries that burn oil for electricity. Saudi Arabia’s electricity demand rises in summer months as air conditioning use increases.  

Also, Nigeria has agreed to limit its output to 1.8 mln barrels a day. It reportedly produced 1.6 mln barrels a day in June. It appears Libya may be more willing to discuss a cap after it reached 1.25 mln barrels. Last month’s production was seen near 820k barrels. These limits do not pinch output but show that OPEC’s output is not unlimited either.  

The Saudi focus on exports seems to be a new development/emphasis. Between October 2016 and June 2017, OPEC output fell 920k barrels a day. However, exports were only 120k barrels a day less, according to Kpler, a ship-tracking company. This implies that although output has been cut, the amount of oil OPEC is providing to the world has edged only slightly lower.