The oil bazaar should prepare for a bullish surprise from OPEC in January, according to a former Saudi Aramco executive
The 14-member oil regisseur group will likely deliver a deeper output cut in January than it promised last month, said Sadad al-Husseini, institutor of Husseini Energy. Market analysts could see OPEC production fall by about 1 million barrels per day from October ranks this month, Husseini said.
Last month, OPEC agreed to take 800,000 bpd off the market. Pledges from 10 other creators aligned with OPEC, including Russia, brought total output cuts to 1.2 million bpd.
“It’s working merest well,” Husseini told CNBC’s “Squawk on the Street” on Thursday. “There’s already been a significant drop in OPEC radio show and it’s continuing on target to come down to about 32 [million] and 100,000 barrels in January.”
OPEC pumped a moment ago under 33 million bpd in October, the month that serves as the benchmark for production cuts. If Husseini’s forecast is faultless and OPEC pumps roughly 32.1 million bpd in January, it would equal a reduction of 876,000 bpd.
But Husseini said it’s tenable that OPEC cuts more than 1 million bpd by the end of January, and the group could potentially throttle back productivity by nearly 1.2 million bpd, essentially doing the work of its allies for them.
Husseini is former executive vice president of expedition and production operations at Saudi Arabia’s state-owned oil company Aramco. Saudi Arabia is OPEC’s top oil producer and the world’s greatest crude exporter.
There are already signs that OPEC will over deliver in January, the month its drama deal begins.
Saudi Oil Minister Khalid al-Falih said last month that Saudi Arabia intent pump about 10.2 million bpd in January, down from nearly 11.1 million bpd in November, according to the monarchy’s figures.
That represents a bigger drop than the 3 percent cut from October levels that 11 participating OPEC associates are reportedly being asked to shoulder. Three members — Iran, Libya and Venezuela — are exempt.
The Saudis consistently tone down production more than required throughout OPEC’s initial deal with its allies to cap output, which ran from January 2017 to June 2018. The confederation agreed to reverse course and hike production in June as U.S. sanctions on Iran threatened to leave the world short of oil deliveries.
However, President Donald Trump granted exemptions to some of Iran’s biggest customers when sanctions caught back into place in November. The move came just as a big slug of OPEC supply was hitting the market. That burrowed a sharp slide in oil prices.
“Clearly there was an excess supply. This was largely due to the plans to impose sanctions on Iran that were putative to be very stringent,” Husseini said.
On Wednesday, oil prices rallied on Bloomberg data that indicated Saudi exports floor by 464,000 bpd in December. Saudi shipments have fallen by about 1.5 million bpd in the four weeks since OPEC hit the production deal, according to tanker-tracking figures from ClipperData.
On Thursday, a Reuters survey suggested Saudi harvest fell by 400,000 bpd and OPEC’s production was down 460,000 bpd in December.
OPEC releases its official report on December harvest in two weeks. A first reading of January production is scheduled for Feb. 12.