19 January 2016, London — OPEC signaled a falling oil supply surplus in 2017 on Wednesday as the exporter group’s output slips from a record high ahead of a deal to cut supply and outside producers show positive initial signs of complying with the accord.
However, the Organization of the Petroleum Exporting Countries, in a monthly report, also pointed to the possibly of a rebound in U.S. output, as higher oil prices following supply cuts by other producers support increased shale drilling.
OPEC and several independent producers agreed last year to cut supply, the first such deal in 15 years, as of Jan. 1, 2017 to remove a glut. The effort has helped oil prices LCOc1 to rise to $55 a barrel, from a 12-year low near $27 a year ago.
“A continued normalisation of monetary policies, indicating improving economic conditions, together with the recent historic cooperation between OPEC and non-OPEC producers, should help to bring needed stability to the oil market,” OPEC said.
“Initial reports show positive signs of compliance with pledged production adjustments,” OPEC added of non-members’ contribution.
OPEC in November finalised a plan to cut its output by about 1.20 million barrels per day (b/d) to 32.50 million b/d. Russia and other non-member countries pledged curbs of around 560,000 b/d in December.
The OPEC figures published on Wednesday showed the group pumped 33.085 million b/d last month, according to figures OPEC collects from secondary sources, down 221,000 b/d from November.
The biggest reduction came from Saudi Arabia, which told OPEC it cut output to 10.47 million b/d. Losses in Nigeria, which is exempt from cutting output because its production has been curbed by conflict, provided the second largest.
OPEC also cut its forecast of non-OPEC supply growth in 2017 to 120,000 b/d after the cut pledges by the independent producers, although this was offset by a 230,000 b/d upward revision to U.S. supply.
“The main component of U.S. oil output – tight oil – is forecast to grow,” OPEC said, using another term for shale.
A renewed jump in U.S. supply, effectively subsidised by the voluntary cuts elsewhere, could weigh on OPEC efforts to boost oil prices and provide an echo of developments which lead up to the price crash starting in mid-2014.
But OPEC leaders such as Saudi Energy Minister Khalid al Falih say they do not expect a shale surge anytime soon.
With demand for OPEC crude in 2017 expected to average 32.10 million b/d, the report indicates there will be an average surplus of 985,000 b/d if OPEC keeps output steady. Last month’s report pointed to a 1.24 million b/d surplus.
The OPEC report, in relocating Indonesian production of about 740,000 b/d into non-OPEC, also made OPEC output appear closer to the production target which took effect on Jan 1.
Total OPEC output in December was just 585,000 b/d above the target, compared to 1.37 million b/d in last month’s report, thanks in large part to Indonesia’s departure from the group.
OPEC said, when the target was adopted, that it included Indonesia and has not specified if the figure will be reduced to reflect the Asian country’s departure.
*Alex Lawler; editing: Susan Thomas & David Evans – Reuters