- Supply Cuts Won’t Re-Balance Market Until Second Half
OPEC said its agreement to cut production, while speeding up the re-balancing of the global oil market, won’t result in demand exceeding supply until the second half of next year.
The Dec. 10 agreement between the Organization of Petroleum Exporting Countries and non-members such as Russia and Kazakhstan “will accelerate the reduction of global inventories and bring forward the re-balancing of the oil market to the second half of 2017,” OPEC said in its monthly report Wednesday. It’s a more pessimistic outlook than that published Tuesday by the International Energy Agency, which indicated a supply deficit in the first half.
Oil prices have climbed about 16 percent since OPEC announced its first production cuts in eight years on Nov. 30 as it seeks to end a three-year glut that the group admits lasted longer than it expected. The accord was widened on Dec. 10 when 11 non-members signed up as well.
Despite a commitment from those countries to lower their output in the first half by 600,000 barrels a day, the organization slightly increased forecasts for supplies from outside OPEC in 2017. It estimates that production in Russia, which pledged half of the non-OPEC cut, and in Kazakhstan, which also agreed to cut, will remain steady for the six months covered by the deal. The report doesn’t state whether the estimates take into account the most recent agreement.
The non-OPEC growth forecast was increased by about 100,000 barrels a day, to 300,000 a day, “due to higher price expectations for 2017,” according to the report, produced by the bloc’s Vienna-based secretariat. The organization kept forecasts for U.S. supply in 2017 unchanged.
The group said its own output climbed 150,800 barrels a day to 33.87 million a day in November, as Nigeria and Libya — which are both exempt from any obligation to cut — restored some of their disrupted supplies. This implies that, in order to meet the group’s target of 32.5 million barrels a day, the other nations would need to make deeper cuts than originally agreed.
Another complication for the deal may come from the group’s revision of October output levels, which were used as the reference points for the accord. Production in Saudi Arabia, the biggest and most influential member, was assessed by the organization at 10.56 million barrels a day in October, higher than its reference level of 10.54 million.
The organization has created a monitoring committee, composed of three members and two non-members, to ensure compliance with the agreement.
Production data submitted directly by members, which is also included in the report, continued to show a discrepancy with the group’s own estimates. While data from Iraq, Iran and Venezuela have regularly differed, this month’s report showed a wider disparity for Saudi Arabia. The kingdom told OPEC it produced 10.72 million barrels a day in November, about 200,000 a day more than OPEC’s own assessment.