OPEC giving up the gains

So far, OPEC compliance with its production cut goals appears to have been good, with cold weather and natural declines adding to reductions from non-OPEC producers, resulting in Russia being ahead of schedule.

Some OPEC members have exceeded their compliance targets, notably Saudi Arabia and Kuwait. The only real laggards are Iraq, the UAE and Venezuela.

Overall, OPEC production in January, according to an S&P Global Platts survey, was down 690,000 b/d to 32.16 million b/d from December. The impact of the cuts was offset by gains of a combined 260,000 b/d from Nigeria and Libya, both of which are exempt from the deal, while Iranian production edged up by 30,000 b/d, which again is within the scope of the deal's terms.

Compliance has been high enough to sustain the gains made in the oil price since the agreement was announced.

Given that the 10 OPEC members participating achieved 91% compliance with their October baseline and that Russia reduced output by 118,000 b/d in January from an overall target of 300,000 b/d in first-half 2016, it could be argued that there is not much more to come from the countries keenest to comply and make the deal a success.

Meanwhile, the International Energy Agency reported that end-December OECD total oil stocks fell below 3 billion barrels for the first time since December 2015, and that they fell 800,000 b/d in fourth-quarter 2016, the largest drop in three years.

This was before the cuts came into effect and must therefore be seen as a result of reduced non-OPEC production, in other words, OPEC's earlier market share strategy.

However, a surge in US crude imports since the start of this year has pushed US stocks to near record highs, highlighting the challenge OPEC faces in accelerating the reduction in global inventories.

US crude stocks sat in early February just 3.5 million barrels below the all-time high of 512.1 million barrels seen in April 2016, according to Energy Information Administration data.

Given the transit time between the Arabian Gulf and US ports, the uptick in imports since January, notably from Saudi Arabia, may reflect a flurry of deals signed before the OPEC deal went into effect.

As for the demand outlook, it remains relatively strong, with oil consumption forecast to grow between 1.2-1.62 million b/d in 2017 and, according to the EIA, by 1.46 million b/d in 2018.

Non-OPEC production is expected to grow by 0.2-0.3 million b/d this year, returning to expansion after its 0.6-0.8 million b/d contraction in 2016. The EIA then predicts much more robust non-OPEC output growth in 2018 of 1.1 million b/d.

This suggests that in order to sustain a drawdown in stocks, OPEC may have to extend its production cuts through 2017, potentially ceding the majority of new market growth in 2018 to non-OPEC producers.

An extension of the supply deal past June will depend on market conditions when OPEC ministers next meet in Vienna May 25.

However, OPEC's longer-term aim has to be to boost its own market share to accommodate rising production, particularly in Iraq and Iran, and a recovery in Nigerian and Libyan output.

Iraq announced in February that it has increased its estimated crude oil reserves by 7% to 153 billion barrels.

National Iranian Oil Company's Managing Director Ali Kardor said Iran's crude oil production is expected to hit 4 million b/d by mid-April and could rise to 4.7 million b/d within five years under an aggressive new drilling program.

Libyan officials have suggested their 1.2 million b/d target by end-year could be met by August – an increase of 500,000 b/d.

Iraq's reserve increase may simply be a bid to increase its OPEC production allocation, but it is nonetheless hard to see how OPEC members' ambitions can be accommodated, if it cedes market share to non-OPEC producers.

Ross McCracken, Managing editor, Energy Economist

Ross McCracken joined Platts in 1999 working on the assessment of crude oil prices, including the key benchmark Dated Brent, becoming crude oil manager, Europe. He subsequently reported on a variety of upstream markets before moving to Energy Economist in 2005. Over the last decade, McCracken has published a wide variety of analysis on oil, natural gas, coal and power markets. He is particularly interested in cross-commodity developments and the impact of new technology.

New service from OilVoice
Trip Shepherd is for companies who need to track their staff in areas of risk.
It's free to use, so we invite you to try it.

Visit source site



More items from oilvoice

Cyber Security Experts Unite to Protect Europe’s Critical Industries

CS4CA Summit Returns to London this October Staying abreast of fast-paced industry developments is crucial for cyber security professionals. And while one can learn a lot from publications and social media, it's hard to beat the value of insights gained first-hand from peers. This is why 150+ IT ...

OilVoice Press - OilVoice

Posted 7 months agoPress > cybereurope

Africa E&P Summit

The organisers of the Africa E&P Summit are bringing together Africa's leading exploration companies and governments, just one of the many reasons why you should be attending frontier's event that they are organising and hosting in London at the IET: Savoy Place, 22-23 May. Over 200 key senior exec ...

OilVoice Press - OilVoice

Posted 11 months agoPress > Africasummitoil summit +2

Equinor Deepens in Offshore Wind in Poland

Equinor has exercised an option to acquire a 50 % interest in the offshore wind development project Bałtyk I in Poland from Polenergia. This transaction is a follow-up of the agreement between the two companies which came into force in May 2018 , by which Equinor acquired a 50 % inter ...

OilVoice Press - OilVoice

Posted 1 year agoPress > EquinorEquinor EnergyPoland +2

Nigeria has highest capex on crude and natural gas projects in sub-Saharan Africa Over Next Seven Years, says GlobalData

Nigeria accounts for more than 34% of the proposed capital expenditure (capex) on planned and announced crude and natural gas projects in the sub-Saharan Africa over the period 2018–2025, according to GlobalData , a leading data and analytics company. The company's report: ‘H2 2018 Production ...

OilVoice Press - OilVoice

Posted 1 year agoOpinion > GlobalDataNigeriaCrude +5

CNOOC Signs Strategic Cooperation Agreements with 9 International Oil Companies

HONG KONG, Dec. 18, 2018 /PRNewswire/ -- CNOOC Limited (the "Company", SEHK: 00883, NYSE: CEO, TSX: CNU) announced today that its parent company, China National Offshore Oil Corporation (CNOOC), has signed Strategic Cooperation Agreements with 9 international oil companies including: Chevron, Conoco ...

OilVoice Press - OilVoice

Posted 1 year agoPress > CNOOCChina National Offshore Oil CorporationChevron +11
All posts from oilvoice