OPEC Cuts May Go Deeper

While plunging output in Venezuela captures the oil world’s attention, problems are quietly festering in another OPEC nation.

Angola, once Africa’s biggest crude producer, is suffering sharp declines in under-invested offshore fields, with output dropping almost three times as much as the nation pledged in an accord with fellow OPEC members, World Oil reported.

With the losses set to accelerate—a shipping program seen by Bloomberg News shows crude exports will fall in June to the lowest since at least 2008—OPEC risks tightening supply too much.

“Angola has a serious problem, with its decline rates becoming increasingly visible,” said Richard Mallinson, an analyst at consultants Energy Aspects Company in London. “The low figure in June does not look like a pattern of maintenance but points to steeper, structural declines.”

OPEC and its allies have succeeded in wiping out an oil glut through production cuts launched in early 2017, boosting prices to a three-year high above $75/bbl. Their efforts have been aided by accidental losses in member nation Venezuela, which is cutting six times the amount it promised as a spiraling economic crisis batters its oil industry.

The risk OPEC faces now is tightening world markets too sharply and sending prices to levels that either crimp oil demand or provoke a new tide of rival supply from the US as Angola’s creeping decline adds to the ongoing slump in Venezuela, that danger only grows. Output interruptions among the organization’s members could send Brent crude prices above $80/bbl, Bank of America Merrill Lynch analysts, including Francisco Blanch, head of commodities research, said in a note to clients.

Unintended supply disruptions are rife in OPEC. Nigeria and Libya were exempt from the deal to cut output because their production had already been diminished by local instability, while Iraq’s implementation of the accord only improved after a political dispute halted exports.