OPEC production falls slightly, but says strong production elsewhere could lengthen crude oil glut
OPEC’s Oil Monthly Report for August, released Monday, showed stronger than expected production from non-OPEC sources, indicating the crude oil glut may take more time to even out than the group previously believed. In the report, OPEC said non-OPEC members like the U.S., Russia and Norway will produce about 190 MBOPD more than expected in 2016. By 2017, the group believes oil supplies will outstrip demand by an average of 760 MBOPD, over three times higher than its prediction last month.
The report called for American production to decline at a slower rate than previously expected after the U.S. oil and gas drillers added 77 drilling rigs in the past two months. The United States will still produce about 340 MBOPD less this year than last, but that number still comes in 66 MBOPD higher than previously expected, OPEC said in its report.
Also pushing the amount of expected future production higher is Kazakhstan’s Kashagan project in the Caspian Sea, said OPEC. The group believes that non-OPEC supply will rise by 200 MBOPD, compared to an estimate of 150 MBOPD last month, due in large part to the giant oil field finally starting up after years of delay.
For its own part, overall OPEC production appears to be down 23 MBOPD from July to August, according to secondary sources. Saudi Arabia, the group’s largest producer, increased its production to a record-high 10.6 MMBOPD during the month, however. Iran’s production continued to grow as well, albeit at a slower pace than before, adding 22 MBOPD of production in August.
Slower market balance makes OPEC efforts more difficult
The higher production numbers present a problem for OPEC, which indicated earlier this month that it is interested in helping reduce price volatility. Saudi Arabian Energy Minister Khalid al-Falih and his Russian counterpart said the two would form a task force to explore options for stabilizing prices, which could include tactics like a production freeze.
OPEC members may be hesitant to agree to a production freeze, however. With non-OPEC producers continuing to hold output above expected levels, OPEC members may not want to hold their production flat and risk losing market share.
“I am very concerned,” an OPEC official involved in the group’s negotiations told The Wall Street Journal. If non-OPEC members are producing more, “it won’t be easy” to agree on capping OPEC production, the official said.
OPEC’s report this month did not predict when supply and demand might rebalance, although it said signs of higher-than-expected demand by some big oil consumers would contribute to “a reduction in the imbalance of market fundamentals” in coming months.
