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Danger as Some Non-OPEC Members Still Over-produce Oil – Barkindo



  • Danger as Some Non-OPEC Members Still Over-produce Oil

The Organisation of Petroleum Exporting Countries, OPEC has raised alarm that the volatile market remains under threat because of an alleged over-production of non-OPEC members.

The Secretary General of OPEC, Dr. Sanusi Barkindo disclosed in a presentation that the organisation has observed over-production from some nations, particularly the United States in recent times.

He said that in the January 2017 OPEC Monthly Oil Market Report, non-OPEC supply was anticipated to grow by 120,000 b/d in 2017.

Barkindo disclosed that in the April report, this number had risen to 580,000 b/d, driven mainly by expectations for rising growth in the US, as well as in Canada and Brazil. He pointed out that in the US alone, expectations for 2017 were for a decline of 150,000 b/d back in the November 2016 report, while in the April report it is now estimated to grow by 540,000 b/d.

Barkindo stated that in addition, it is important to remember that the fourth quarter of 2016 was a period of significantly rising supplies that were working their way through the market in the early part of 2017.

Market Rebalancing

According to him, non-OPEC increased its production by around 1.8 mb/d from September to November 2016, and over the same period, OPEC increased its production by about 500,000 b/d.

He said that this huge increase of 2.3 mb/d needs to be set against a global demand increase of just 200,000 b/d in the fourth quarter of 2016, compared to the third quarter.

“However, in recent weeks we have seen positive sentiment return, driven by expectations for further improvement in OPEC and non-OPEC conformity, which ended up at 98% in March, and signs that the market rebalancing is taking place. Total OECD commercial oil stocks in March fell by 23 mb, the second consecutive monthly drop. The total level is 275 mb above the latest five-year average, compared to 314 mb in February, and 356 mb in the same month in 2016.”

“It should be noted that across the first quarter of 2017, stocks built by 26 mb, which is much less than the seasonal average of 36 mb, even though refinery maintenance globally was much heavier. It is evident that the global inventory overhang of crude and oil products onshore is declining. Outside of the US, we believe the global trend of destocking is broadly on track. Moreover, we are also seeing numbers from industry stating that crude in floating storage has fallen by over 40 mb since the beginning of the year.”

“The US has evidently not been reflective of the rest of the world, given rising production there in the first quarter of 2017, but even here the market has now witnessed three consecutive weekly crude stock draws as refinery utilization has risen.

Meanwhile oil prices stepped below $52 a barrel yesterday as rising crude output and drilling in the United States countered OPEC led production cuts aimed at clearing a supply glut.

Baker Hughes Inc report shows that the number of oil rigs operating in U.S. fields rose by nine, the highest level in two years to 697 last week.

Also, Libya’s output rose to more than 700,000 barrels a day as the OPEC member’s biggest oil field and another field in its western region resumed pumping.

Analysts at JBC Energy, has said in a report, referring to the outlook for U.S. production, the U.S. rig count indicates that there is plenty more to come.

Global benchmark Brent crude for July was down 50 cents at $51.55 a barrel, in a public holiday-dominated session for Asia: Australia and Japan were the only major markets open, while U.S. crude for June was down 44 cents at $48.89 a barrel.

OPEC and participating non-OPEC countries meet on May 25 to discuss whether to extend the reduction. Given that inventories remain high and prices are half their mid-2014 level, OPEC members including top exporter Saudi Arabia support prolonging the curbs.

A board member of Libya’s National Oil Corp, Jadalla Alaokali, said that, “Libya’s Sharara field is currently producing 216,400 barrels a day, while the El Feel, or Elephant, deposit is pumping 26,500 and is expected to boost output further.

Zurich-based commodities analyst for UBS Group AG, Giovanni Staunovo, said that “The return of Libyan supply makes the job of OPEC more challenging. However, renewed supply disruption in Libya remains possible.” The improving sentiment was seen in a rise in WTI and Brent combined net-long positions, which reached over 751,000 contracts on April 18, from 670,000 on April 4,”

In another development, the World Bank, has forecast that the prices of crude oil will remain at $55 per barrel in 2017, adding that overall energy prices will increase by 26 percent same year.

The bank made this known in its latest Commodity Markets Outlook.

In the Outlook, the bank stated: “We expect supply to tighten in the current quarter as OPEC and non-OPEC production cuts start to affect global supply. In that, the institution differs from some energy analysts who are markedly bearish on oil prices. Based on this optimism, the World Bank expects crude prices to reach $60 a barrel next year – the price level that Middle Eastern producers would like to see sooner rather than later. Oil is unlikely to go much higher than this.”

The bank, however, argues that shale output increases will limit the upward potential of prices.

It stated: “ If shale production rises faster than the bank expects, this would put additional pressure on prices and would slow down the rebalancing of the market. It would also lower compliance with the OPEC deal, which is also a possibility as the current reductions in output are taxing for many producers’ budgets, and an extension could motivate some of them to cheat.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

Crude Oil

Oil Dips Below $62 in New York Though Banks Say Rally Can Extend




Oil Dips Below $62 in New York Though Banks Say Rally Can Extend

Oil retreated from an earlier rally with investment banks and traders predicting the market can go significantly higher in the months to come.

Futures in New York pared much of an earlier increase to $63 a barrel as the dollar climbed and equities slipped. Bank of America said prices could reach $70 at some point this year, while Socar Trading SA sees global benchmark Brent hitting $80 a barrel before the end of the year as the glut of inventories built up during the Covid-19 pandemic is drained by the summer.

The loss of oil output after the big freeze in the U.S. should help the market firm as much of the world emerges from lockdowns, according to Trafigura Group. Inventory data due later Tuesday from the American Petroleum Institute and more from the Energy Department on Wednesday will shed more light on how the Texas freeze disrupted U.S. oil supply last week.

Oil has surged this year after Saudi Arabia pledged to unilaterally cut 1 million barrels a day in February and March, with Goldman Sachs Group Inc. predicting the rally will accelerate as demand outpaces global supply. Russia and Riyadh, however, will next week once again head into an OPEC+ meeting with differing opinions about adding more crude to the market.

“The freeze in the U.S. has proved supportive as production was cut,” said Hans van Cleef, senior energy economist at ABN Amro. “We still expect that Russia will push for a significant rise in production,” which could soon weigh on prices, he said.


  • West Texas Intermediate for April fell 27 cents to $61.43 a barrel at 9:20 a.m. New York time
  • Brent for April settlement fell 8 cents to $65.16

Brent’s prompt timespread firmed in a bullish backwardation structure to the widest in more than a year. The gap rose above $1 a barrel on Tuesday before easing to 87 cents. That compares with 25 cents at the start of the month.

JPMorgan Chase & Co. and oil trader Vitol Group shot down talk of a new oil supercycle, though they said a lack of supply response will keep prices for crude prices firm in the short term.

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Crude Oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return



Crude oil

Oil Prices Rise With Storm-hit U.S. Output Set for Slow Return

Oil prices rose on Monday as the slow return of U.S. crude output cut by frigid conditions served as a reminder of the tight supply situation, just as demand recovers from the depths of the COVID-19 pandemic.

Brent crude was up $1.38, or 2.2%, at $64.29 per barrel. West Texas Intermediate gained $1.38, or 2.33%, to trade at $60.62 per barrel.

Abnormally cold weather in Texas and the Plains states forced the shutdown of up to 4 million barrels per day (bpd) of crude production along with 21 billion cubic feet of natural gas output, analysts estimated.

Shale oil producers in the region could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output affected, sources said, as frozen pipes and power supply interruptions slow their recovery.

“With three-quarters of fracking crews standing down, the likelihood of a fast resumption is low,” ANZ Research said in a note.

For the first time since November, U.S. drilling companies cut the number of oil rigs operating due to the cold and snow enveloping Texas, New Mexico and other energy-producing centres.

OPEC+ oil producers are set to meet on March 4, with sources saying the group is likely to ease curbs on supply after April given a recovery in prices, although any increase in output will likely be modest given lingering uncertainty over the pandemic.

“Saudi Arabia is eager to pursue yet higher prices in order to cover its social break-even expenses at around $80 a barrel while Russia is strongly focused on unwinding current cuts and getting back to normal production,” said SEB chief commodity analyst Bjarne Schieldrop.

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Crude Oil

Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather




Crude Oil Rose Above $65 Per Barrel as US Production Drop Due to Texas Weather

Oil prices rose to $65.47 per barrel on Thursday as crude oil production dropped in the US due to frigid Texas weather.

The unusual weather has left millions in the dark and forced oil producers to shut down production. According to reports, at least the winter blast has claimed 24 lives.

Brent crude oil gained $2 to $65.47 on Thursday morning before pulling back to $64.62 per barrel around 11:00 am Nigerian time.

U.S. West Texas Intermediate (WTI) crude rose 2.3 percent to settle at $61.74 per barrel.

“This has just sent us to the next level,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude oil WTI will probably max out somewhere pretty close to $65.65, refinery utilization rate will probably slide to somewhere around 76%,” Yawger said.

However, the report that Saudi Arabia plans to increase production in the coming months weighed on crude oil as it can be seen in the chart below.

Prince Abdulaziz bin Salman, Saudi Arabian Energy Minister, warned that it was too early to declare victory against the COVID-19 virus and that oil producers must remain “extremely cautious”.

“We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious,” he told an energy industry event.

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