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OPEC Raises 2017 Estimate for Supply Growth From Rivals by 64%

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  • OPEC Raises 2017 Estimate for Supply Growth From Rivals by 64%

OPEC boosted estimates for growth in rival supplies by 64 percent as the U.S. oil industry’s recovery accelerates, threatening the group’s attempts to clear a surplus.

Production from outside the Organization of Petroleum Exporting Countries will increase by 950,000 barrels a day this year, OPEC said in a report, revising its forecast up by about 370,000. The projection is four times higher than in November, when the group announced a production cut to try and re-balance oversupplied world markets. Non-OPEC nations pump about 60 percent of the world’s oil.

Oil prices sank to a five-month low below $44 a barrel in New York last week on concern that the cuts by OPEC and 11 partners, including Russia, aren’t clearing the glut and that more supply is coming from U.S. shale drillers. While OPEC has signaled it will probably extend the cutbacks into the second half, the increased production outlook for competitors may fuel speculation their strategy has backfired.

“U.S. oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices,” OPEC’s Vienna-based research department said in the report. “In addition to the growth in the U.S., higher oil production is expected in Canada and Brazil.”

The report echoed comments from officials such as Saudi Arabian Energy Minister Khalid Al-Falih and his Russian counterpart Alexander Novak that prolonged action will likely be required when ministers gather on May 25.

“Continued rebalancing in the oil market by year-end will require the collective efforts of all oil producers to increase market stability,” it said.

The organization raised its outlook for U.S. production growth by 285,000 barrels a day to 820,000 a day. The number of drilling rigs operating in the country has more than doubled since May, data from Baker Hughes Inc. shows, as shale explorers emerge from a two-year rout buoyed by the initial price gains after OPEC announced its plan.

Original Projection

When OPEC introduced its 2017 forecast for non-OPEC supply last July, it had projected a contraction of 100,000 barrels a day.

The report indicated that OPEC’s objective to reduce inventories to their five-year average remains some way off. While it noted that surplus oil held at sea diminished, stockpiles in the most industrialized nations increased from the fourth quarter by 31 million barrels to just over 3 billion. That’s 276 million above the five-year norm.

OPEC members are still sticking with their pledge to reduce output, the report showed. Production from all 13 members slipped by 18,200 barrels a day to 31.73 million last month, with Saudi Arabia continuing to pump below its official target.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, 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

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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.

PRICES

  • 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

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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

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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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