OPEC production falls to six month low

Mohammed Barkindo, Secretary General, OPEC        Credit: REUTERS

Oil market may not stabilize before end of 2018 despite Organization of the Petroleum Exporting Countries (OPEC) production reaching six month low in November as U.S. production continues to increase than expected.

The Wall Street Journal quoted the oil cartel to have said Wednesday in its monthly oil report that production declined by about 133,500 barrels a day in November to 32.45 million barrels a day.

Although OPEC and its Russia-led allies agreed last month to extend the combined production cuts of 1.8 million barrels a day until the end of 2018. However, the output decrease last month was tied to other factors with domestic demand for Saudi oil declining in the winter and Angola and Venezuela facing production issues.

Mohammad Barkindo, OPEC’s secretary general on Wednesday told Bloomberg that the group is near its goal of rebalancing the oil market as an inventory overhang targeted by its output curbs continues to shrink.

The group last month estimated the overhang at about 154 million barrels, but it noted that other producers were fast filling the gap, notably U.S. shale-oil companies that have been taking advantage of rising oil prices and improved efficiencies.

Non-OPEC oil supply growth for 2017 now stands at about 810,000 barrels a day, representing an upward revision of around 150,000 barrels a day from the previous OPEC report. For 2018, the forecast for supply growth outside the cartel was increased by about 120,000 barrels a day to around 990,000 barrels a day.

Russia—OPEC’s main partner in the cuts—is increasing its oil by about 50,000 barrels a day on average this year, OPEC said. But the estimate includes natural-gas liquids that are excluded from the agreed reductions.

However, the main driver in non-OPEC output comes from the U.S., where production is expected to grow by 610,000 barrels day this year and 1.05 million barrels a day in 2018—an increase of 180,000 barrels a day.

This production surge is due to “increased investment in U.S. tight oil and improved well efficiency,” along with a healthy economic growth and rising oil prices, OPEC said.

As a result, the overhang in inventories in industrialized nations may not clear up until the end of next year, OPEC said. The assessment errs on the cautious side as Russia, for instance, had said the glut may end as early as mid-2018.