By Irina Slav
Various OPEC members have been busy looking for ways to get all members of the cartel to agree to a production cut, but outside the spotlight, as it turns out, they have been pumping ever-growing amounts of crude.
According to the IEA’s latest Oil Market Report released today, OPEC produced 230,000 bpd more in October, hitting yet another record with a total daily production of 33.83 million barrels. This, according to the authority, will make the task of cutting production more challenging than previously thought.
The proposed band for production that was hoped would help the market return to balance is 32.5-33 million bpd.
The challenge becomes nearly insurmountable in light of the OPEC members that caused the rise. These were Libya, Nigeria, and Iraq, where production hit an all-time high. The first two of these countries have been exempted from the production cut because of loss of market share unrelated to oil prices trends. Iraq is adamant that it should be exempted, too.
The situation is heating up, with Saudi Arabia last week flexing its muscles after playing the good and reasonable guy for a couple of months. According to OPEC sources cited by ZeroHedge, the desert kingdom threatened to turn up the taps and add to the glut. It seems Saudi Arabia is losing patience with its co-members, which are refusing to follow its lead at their own expense.
“The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting,” the source told Reuters. That’s certainly food for thought and cause for pessimism, especially if we factor in Saudi Arabia’s ongoing fight against the Iran-backed Houthis in smaller neighbor Yemen.
In this context, it is difficult to continue believing a cut will be agreed to. What’s even worse, at least from the energy industry’s perspective, is that even if an agreement is forged through clenched teeth, it is unlikely to have any major effect on prices.
In the same report, the EIA said supply from non-OPEC producers, which so far this year have reduced output by an average 900,000 barrels a day, will rise in 2017. The rise won’t be tiny, either: EIA puts it at 500,000 bpd. This, Bloomberg reminds us, is a lot more than last month’s forecast non-OPEC supply increase of 110,000 bpd for next year. Apparently, a lot can change in a month, prompting the agency to revise its forecast so substantially.
On the demand side, things are still looking kind of bleak. The IEA kept its projection for a growth rate of 1.2 million bpd this year and the next, because of a slowdown in the Americas and China. It doesn’t seem like anything could turn things around, not even the renewed militant attacks against oil pipelines in Nigeria.
And still, says IEA, OPEC had better cut production, possibly on the basis that every little helps. Indeed, if Russia opts out of an agreement with the cartel, and with other big non-OPEC producers such as Brazil and Kazakhstan pumping consistently more crude, the glut that had barely started to ease this year will once again plunge prices into murky depths and traders into depression.
By Irina Slav for Oilprice.com