OPEC Reports Slight Drop in Oil Glut, Flags Recovery of US Shale

Chineme Okafor in Abuja
The Monthly Oil Market Report (MOMR) of the Organisation of Petroleum Exporting Countries (OPEC) for the month of December 2016 has revealed there was a slight drop in the crude oil supply glut that saturated the global oil market a year ago and contributed to price drops.

Released yesterday by the cartel, the MOMR said: “Preliminary data indicates that the world’s oil supply decreased in December by 0.30mb/d (million barrels per day) m-o-m (month-on-month) to average 96.92mb/d, but higher by 0.71mb/d, y-o-y (year-on-year).”

It also said production from OPEC members decreased by 221,000 barrels a day (b/d) from the previous month to average at 33.08mb/d, some volumes more than the 32.50mb/d production cut figure it agreed with some non-OPEC members in December to stabilise the market and which ought to have started in January 2017.

According to it, Saudi Arabia, Nigeria, and Venezuela recorded the highest drop in their production volumes. Nigeria though has an exemption on the production cut, but reports indicated that the country was yet to overcome its challenges with production disruptions in the Niger Delta.

Also, OPEC and several independent producers agreed in December 2016 to cut their production levels, the first of such deal in 15 years, to remove a supply glut. The effort has reportedly helped oil prices to rise to about $55 a barrel, from a 12-year low of about $27/b a year ago.
The cartel in the report equally flagged the possibly of a rebound in US shale oil output, mainly on the back of higher oil prices from the supply cuts it agreed with other producers.

It said, in 2017, demand for OPEC crude was forecast to be 32.1mb/d, a further increase of 0.9mb/d over 2016, while global oil demand growth for 2017 was expected to reach 95.60mb/d.
“Positive upward revisions were focused on OECD Europe, as a result of expected cold weather and improvement in transportation fuel requirements. Other Asia was revised downward in the first half of 2017, following the demonetization policy weighing on the economy and thus oil requirements.

“According to secondary sources, OPEC crude oil production in December decreased by 221tb/d from the previous month to average 33.08mb/d. Crude oil output increased the most in Iraq, Angola and Libya, while production in Saudi Arabia, Nigeria and Venezuela showed the largest decline,” said the MOMR.

The report also stated that non-OPEC oil supply was projected to average 57.26mb/d in 2017, partially due to the planned production adjustments in line with OPEC-non-OPEC cooperation, but that the US forecast for 2017 was revised up by 0.23mb/d, following higher rig counts and stronger cash flows.

“Non-OPEC supply adjustment commitments are somewhat challenging for those countries, however, initial reports show positive signs of compliance with pledged production adjustments. The revised 2017 forecast expects average oil production by these 11 countries in 1H17 (first half of 2017) to correlate with adjustment production levels.

“The forecast for 2017 non-OPEC supply also depends on how much US tight oil production improves in the coming months. Most sources anticipate a rebound in shale oil output next year, supported by the recovery in oil prices and the remarkable spending,” it added.

The report equally noted: “According to new studies by Barclays, global oil and gas companies are expected to raise exploration and production (E&P) spending in 2017 by 7 per cent, marking the first increase in three years. Thus, not only price can stimulate production in North America, but also spending on new projects and field developments, in general. In particular, projects with good economic performance and productivity could bring more oil online in 2017.”