Opec raises oil production estimates outside the cartel for 2017
US expected to lead non-cartel supply followed by Brazil and Canada this year
Opec has raised its 2017 estimates for oil production from outside of the cartel as US shale drillers boost activity in response to higher prices, underlining the threat to the group’s attempts to balance the market.
Non-Opec oil supply is now projected to grow about 400,000 barrels a day this year, from a previously estimated 240,000 b/d, to average at a higher level of 57.7m b/d, Opec said in its monthly market report.
The increased growth figure from just one month ago comes after a near 10 per cent drop in prices in the last week, as traders fret over the shale industry’s potential to overwhelm the cartel’s own supply cuts.
Hedge funds have reduced their bullish bets on the oil price given the renewed anxiety over excess supply. Brent crude, the global benchmark, has dropped nearly 7 per cent this month to $51.79 a barrel while US marker West Texas Intermediate has fallen almost 10 per cent to $48.73 a barrel.
“It seems that the oil supply recovery is gathering momentum in the world oil market, stimulated by gradually rising prices as well as improvements in drilling efficiency and well productivity in North America,” said Opec in its March report.
Despite Opec’s broad compliance with a global agreement to curb supplies, oil stockpiles remain well above their five-year average at more than 3bn barrels as production elsewhere rises and inventories remain bloated.
Among producers outside the cartel, the biggest contributor in 2017 is expected to be the US, which will add 340,000 b/d. Brazil and Canada will increase by a higher level of 260,000 b/d; Kazakhstan by 140,000 and smaller non-Opec countries in Africa will add several thousand barrels.
Opec’s collective production has fallen about 1m b/d since the deal late last year to about 32m b/d in February. This figure has been calculated by secondary sources, such as consultants and analysts, that submit assessments to Opec.
The drop — led by cuts from Opec kingpin Saudi Arabia — comes even as conflict-ridden Libya and Nigeria are exempt from the agreement and Iran has been given a special dispensation to increase its output slightly.
Although world oil demand this year has been revised higher, with growth at almost 1.3m b/d to average 96.3m b/d, and Opec forecasting no oil surplus in the second half of 2017, there are concerns about the pace of the inventory drawdown.
Opec had expected excess stockpiles to ease at a quicker rate than they have in the first few months of 2017, said Khalid al-Falih, Saudi Arabia’s energy minister last week.
Secondary source data, from which targets for each producer are calculated, show the kingdom decreased its production in February from the previous month to under 9.8m b/d. But the Saudi government data submitted to Opec, however, shows an increase in production to above 10m b/d.
Nonetheless, it is still a steep drop from almost 10.5m b/d the kingdom produced in December. Mr Falih last week warned other participants of the deal that the steep production cuts must be shared by all. “Saudi Arabia will not allow itself to be used by others,” he said.