OPEC+ extends oil cuts to June as it waits for demand to rise

OPEC and its allies announced an extension to their deep production cuts early March, but with their tightened quotas now set to run into the start of the Northern Hemisphere summer, the coalition is banking on increased global oil demand to bolster its bullish hopes.

Saudi Arabia, Iraq, the UAE and several other OPEC+ countriessaid they will maintain about 1.7 million b/d in output curbs through the end of June, while Russia said it would implement a new formula that would gradually convert its previous export cuts into crude production cuts over that span.

The quotas were scheduled to expire at the end of March, but with the global economic outlook being still hazy, the alliance decided to keep the reins on its supply for a while longer.

Attacks by Yemen's Houthi rebels on vessels in response to the Israel-Hamas war prompted a number of shipping companies to divert vessels from the Suez Canal and go via the Cape of Good Hope.

The disruptions caused crude prices to weaken in the Mediterranean, as arbitrage volumes to Asian buyers have been reduced.

Market participants said on Feb. 23 that prior to the shipping risks in the Red Sea around 8 million barrels of CPC Blend were sold to Asian buyers each month, but this has significantly reduced, as a growing number of shipping companies have avoided the Suez Canal.

Many Asian buyers are already exploring alternate supplies from production-gowning regions like the US, Brazil, Canada and Guyana.

Oil production at Libya's Wafa field and gas flows through a key pipeline to Italy resumed following a brief shutdown after successful negotiations between the Petroleum Facilities Guard and the country's UN-recognized government.

In a coordinated protest on Feb. 25, the PFG -- tasked with guarding Libya's vital oil and gas infrastructure -- cordoned off the Wafa oil and gas field as well as the al-Zawiyah export terminal, part of the Greenstream pipeline connecting Libya with the Italian island of Sicily.

The Wafa project -- which produces 37,000 b/d of crude and 22,000 b/d oil equivalent of natural gas according to its website -- is part of the Mellitah Oil and Gas complex, operated by Italy's Eni alongside state-owned National Oil Corporation (NOC). Gas from Wafa is transported through the 520-km Greenstream pipeline, which has an 8 Bcm/year capacity.

Orlen, Poland's largest refiner, said Feb. 22 that its throughput and refining sales fell in the fourth quarter of last year thanks to maintenance and the sale of a 30% stake in the Gdansk plant to Saudi Aramco.

Crude throughput at Orlen's refineries in Poland, Czech Republic, and Lithuania fell by 16% year on year to 9.47 million mt, with the biggest drop seen at the Plock and Gdansk refineries in Poland. Refining segment sales volume also declined by 10% year on year to 8.7 million mt.

The macroeconomic environment worsened due to a significant increase in the price of Russian Urals crude, prompting Orlen to switch to more expensive crudes from other regions. Looking ahead, Orlen anticipates crude oil prices to remain around $82/b and refining margins to decrease to around $12/b, primarily due to new refineries in Nigeria and Mexico's increasing global supply.

Kazakhstan and Iraq agreed to compensate for exceeding their OPEC+ crude output quotas as part of efforts to stabilize the oil market. Kazakhstan, despite committing to cut an additional 80,000 b/d, pumped 1.56 million b/d in January, while Iraq produced 4.27 million b/d against a target of 4 million b/d. Both countries pledged to review output figures compiled by secondary sources and compensate for overproduction over the next four months.

Houston-based Vaalco Energy announced its acquisition of Sweden's Svenska Petroleum Exploration for $66.5 million, marking its entry into Cote d'Ivoire and Nigeria. The deal, funded by cash on hand, gives Vaalco a 27.39% interest in Block CI-40 offshore Cote d'Ivoire, including the producing Baobab oil field, and a 21.05% stake in OML 145, a non-producing discovery off Nigeria operated by ExxonMobil.

The acquisition aligns with Vaalco's strategy, providing diversification, strong production and reserves, organic upside opportunities, and sustainable cash flow generation. Vaalco aims to capitalize on Baobab field's FPSO upgrades in 2025 for expected production growth from a 2026 drilling campaign. This move comes amid Cote d'Ivoire's ambitions to boost oil production, highlighted by Eni's Baleine field startup, set to reach full capacity of 150,000 b/d by 2026, alongside significant natural gas production for the domestic market.

TotalEnergies confirmed its plans to divest from Nigeria's troubled onshore fields, following Shell's footsteps, but will retain its gas projects in the country. The decision aligns with TotalEnergies' policy, as producing oil in the Niger Delta is deemed challenging. Shell recently announced the sale of its Nigerian onshore business to a local consortium for up to $2.4 billion. Despite the divestment from onshore fields, TotalEnergies remains committed to its gas and offshore oil projects in Nigeria.

The company's total Nigeria production for 2023 was 219,000 b/d of oil equivalent, making it the country's fourth-largest oil and gas producer. Nigeria, Africa's largest producer, aims to boost output amid challenges such as underinvestment, lack of exploration activity, and infrastructure vandalism in the Niger Delta.