Ever since the OPEC production cut deal was announced last year in Vienna, there have been two key wildcards fascinating the oil trader and analyst community: what would be the deal compliance (in other words, how pervasive would cheating be), and which country would break away from the deal first. When it comes to the former, after an impressive run in which compliance hit and in some months surpassed 100%, mostly due to Saudi Arabia shouldering the extra production cut burden, in June it finally slid back to 92%, the lowest in months, and the first indication that the recent Saudi rising production is starting to weigh on the cartel members who are growing concerned that the Saudi commitment to production cuts may be waning.
As for the first country to defect, the odds were always highest on Venezuela, however as of today that has turned out to be a losing wager because as Argus reported, Ecuador's oil minister said the cash-strapped country faces a "difficult economic situation" and is no longer able to comply with its pledge to Opec to cut 26,000 b/d of oil production.
Today's announcement comes after the small Latin American nation had strictly followed the quota set by the Vienna deal, and from January to May Ecuador reduced its output by some 16,000 b/d. However, that ended today, when oil minister Carlos Perez said today the country is no longer complying with the quota because of its fiscal challenges. These include a public debt close to 50% of gross domestic product and an expected 7.5% fiscal deficit for the year.
Perez claimed Ecuador has a non-written agreement with Opec that gives Quito some flexibility. In the last month and a half instead of reducing output, Ecuador has slightly increased it.
Perez said state-owned downstream company PetroAmazonas is now producing about 430,000 b/d and foreign oil companies, such as Spain's Repsol, China's AndesPetroleum and Italy's Agip, are producing another 115,000 b/d. That combined 545,000 b/d is a 2.19pc increase over the production average of the first four months of the year, according to oil regulator Arch.
As a reminder, this is what the agreed upon production adjustments and quotas looked like per the Vienna deal.
And so with one country of the 11 OPEC states who pledged to throttle their production already out of the agreement just six months after it was implemented, the next logical question is how much longer can the deal last in its entirety, and, obviously, who will defect next citing a "difficult economic situation" something which virtually every OPEC member nation can claim.