With Non-members Flooding Market, OPEC Predicts Oil Glut in 2017

Ejiofor Alike with agency report

The Organisation of Petroleum Exporting Countries (OPEC) has predicted a larger surplus in the oil market in 2017 from non-OPEC members as new fields come on stream, according to the cartel’s monthly Oil Market Report (OMR) published monday.

Apart from new oil fields coming on stream, the anticipated glut in the oil market will be further buoyed by the United States shale producers, who have refused to be forced out of the market by the low oil price.

The booming output from shale oil fields had pushed the global market into oversupply in 2014, with prices plummeting from a peak of $115 per barrel in June 2014 to an all-time low of $27 per barrel in January this year.

The prices later recovered to a 2016 peak of $52 per barrel in June before it dropped, hovering around $47 yesterday after it had approached $50 per barrel at the weekend, following a drop in the United States inventory data to nearly a two-decade low.

Prices above the $40 per barrel range would encourage the high cost shale producers to boost output, while a price range below $40 would force the shale producers out of the market and prompt OPEC and non-OPEC to mull production cuts as oil companies cut spending.

The shale producers have proved more resilient to cheap oil than expected, thus fuelling a concern of larger surplus next year.

Reuters reported that the prospect of a larger surplus than expected has added to the challenge of OPEC and non-members such as Russia, who are making a renewed attempt to curb output.
According to OPEC’s OMR, the demand for crude from OPEC will average 32.48 million barrels per day (bpd) in 2017, down from the previous forecast of 33.01 million bpd.

OPEC revised up its 2016 and 2017 non-OPEC supply forecasts, citing factors including the start-up of Kazakhstan’s Kashagan oilfield and a lower-than-expected decline in US shale output, and said the immediate outlook was for more production.

“It is expected that there will be higher non-OPEC production in the second half of 2016 compared to the first half,” OPEC said in the report.

OPEC expects non-OPEC supply to rise by 200,000 bpd in 2017, versus a previously forecast 150,000 bpd decline.

The revision is mostly due to Kashagan, OPEC said, as the long-delayed giant field finally starts up.

On top of that, the forecast for this year was revised up by 180,000 bpd.
OPEC itself kept output near a multi-year high in August, pumping 33.24 million bpd, down 23,000 bpd from July’s figure, the report said.

The July figure is the highest since at least 2008, according to a recent Reuters review of past OPEC reports.

Reuters reported that oil prices pulled back yesterday amid receding hopes for a production freeze deal and a broad perception that last week’s significant drop in US crude inventories was unlikely to be sustained.

The November contract for global crude benchmark Brent was down 1.4 per cent at $47.34 a barrel, while its US counterpart West Texas Intermediate was down 1.66 per cent at $45.13 for October deliveries.

The prices at the weekend had surged about four per cent after the United States inventory data showed a drop in stocks to nearly a two-decade low as crude imports into the US Gulf Coast slid last week due to Tropical Storm Hermine.

But most observers have agreed the massive 14.5 million barrel reduction in US oil stocks was driven mostly by inclement weather and that there is a high likelihood prices are correcting themselves already in anticipation of a similarly sized build up when data are released this week.