09 November 2018, Sweetcrude, Lagos — Just when the oil market had thought OPEC’s output cut strategy for erasing oil glut and increasing prices had begun yielding results, the market seems to be flooded again, and over-supply is not looking to ease anytime soon.
Oil prices fell to multi-month lows on Friday as global supply increased. Now, investors are worried because demand is not matching the huge supplies.
Benchmark Brent crude oil LCOc1 fell to its lowest since early April, down more than 18 percent since reaching four-year highs at the beginning of October. Brent was 15 cents a barrel lower at $70.50 by 0925 GMT, down more than 3 percent for the week and more than 14 percent this quarter.
OPEC’s basket of fifteen crudes stood at $70.68 a barrel on Thursday, compared with $70.63 the previous day, according to OPEC Secretariat calculations, while the U.S. light crude oil CLc1 was 25 cents lower at $60.42, down 4.3 percent this week and off more than 20 percent since early October.
Oil prices increased in October over looming U.S sanctions against Iran, and disruptions from Venezuela, draining inventories and causing shortages in some regions.
However, the likes of Saudi Arabia, Russia and shale producers in the United States, have consistently increased output, even more than what the market had lost as a result of sanctions on Iran and offsets from Venezuela.
The United States, Russia, and Saudi Arabia are producing more than 33 million barrels per day, bpd- a third of the world’s oil.
Clearly, OPEC is distraught by the new wave of market flooding which is not part of its original plan with the Declaration of Cooperation, and analysts hope the group would discuss production and further cuts at the next meeting in Vienna over the weekend.
OPEC producers’ economies survive on how much they make from exporting crude oil hence, the group’s concern about getting rid of glut yet, the U.S President, Donald Trump is interested in having more than enough supplies in the market and crashing prices.
U.S. crude oil production reached 11.3 million barrels per day (b/d) in August 2018, according to EIA’s latest Petroleum Supply Monthly, up from 10.9 million b/d in July, making it the first time that monthly U.S. production levels surpassed 11 million b/d.
U.S. crude oil production exceeded the Russian Ministry of Energy’s estimated August production of 11.2 million b/d, making the United States the leading crude oil producer in the world.
In October, OPEC increased oil production to the highest level since 2016 to a level before the DoC was enacted, according to a recent Reuters survey. The highest output was from Saudi Arabia and the UAE. There was also a rebound from Libya although the country is not part of the OPEC production cuts. The 15 countries in OPEC produced an average 33.31 million barrels per day in October, the highest since December 2016. That was also up 390,000 bpd from September.
In the U.S, monthly crude oil production reached a record high in several states. Texas had the highest record level at 4.6 million b/d, followed by North Dakota at 1.3 million b/d. Other states that had record-high production levels were New Mexico, Oklahoma, Colorado, and West Virginia. Production in the Federal Offshore Gulf of Mexico also hit a record high of 1.9 million b/d.
The Permian region, which is located in western Texas and eastern New Mexico, accounts for about 63% of total Texas crude oil production and 95% of total New Mexico crude oil production. From January 2018 to August 2018, Texas crude oil production increased by 683,000 b/d (15%) and New Mexico production increased by 182,000 b/d (25%).
The growth in Texas and New Mexico since the start of 2018 surpassed EIA’s previous expectations, which assumed that pipeline capacity constraints in the Permian region would dampen production growth in response to the increased differential between the West Texas Intermediate (WTI) crude oil price at Cushing, Oklahoma, and the WTI price at Midland, Texas. In August 2018, this differential had grown to more than $16 per barrel (b), up from $0.43/b in January. However, industry efficiencies in pipeline utilization and increased trucking and rail transport in the region have allowed crude oil production to continue to grow at a higher rate than EIA expected.
From May through August, production in the Gulf of Mexico grew by an average of 130,000 b/d every month, a significant increase from the growth rate in the first four months of the year. This increase was primarily the result of a number of fields returning to full production after several months of maintenance and other infrastructure issues that arose from Hurricanes Harvey and Nate in 2017.
U.S. crude oil production has increased significantly during the past ten years, driven mainly by production from tight oil formations using horizontal drilling and hydraulic fracturing. EIA estimates of crude oil production from tight formations in August 2018 reached 6.2 million b/d, or 55% of the national total.
Libya restored a huge amount of disrupted supply. Saudi Arabia ramped up production to 10.7 million barrels per day, up 700,000 bpd since the OPEC meeting in June.
Nigeria’s crude oil production jumped by 74,000 bpd from its July level to average 1.722 million bpd in August, according to OPEC’s secondary sources. In September, Nigeria further boosted its crude oil production, by 26,000 bpd to 1.748 million bpd.
According to loading programs obtained from Reuters, Nigeria’s oil exports are expected to hit their highest level in six months in November, at 1.876 million bpd this month, up from 1.652 million bpd in October.
On Wednesday, the EIA reported another large crude oil inventory increase, with stocks jumping by 5.8 million barrels in the first week of November, up to 431.8 million barrels. Shockingly, the EIA said the U.S. produced a whopping 11.6 mb/d for the week ending on November 2.
If the U.S production keeps going up at such a pace, OPEC might have to think up other strategies to fight glut and boost prices other than cuts.