OPEC to Address Rising Oil Output at Meeting

Marco Green
January 22, 2018

EIA's latest Short-Term Energy Outlook from earlier this week estimated that USA crude oil production averaged 9.3 million bpd in the whole of 2017, and 9.9 million barrels per day (bpd) in December alone.

US crude inventories fell 6.9 million barrels last week, compared with forecasts for a 3.5 million-barrel draw, the US Energy Information Administration said.

Analysts also pointed to excessive long positions in financial oil markets as a likely brake on any upward momentum in prices, with many traders soon likely to cash in on recent price rises, which have seen crude jump by around 14 percent since early December. To put things in perspective, the USA oil production has increased from 8.69 million bpd in November 2016, to nearly 9.78 million bpd at the end of 2017, representing a jump of more than 12% over the previous year.

In its report, Opec raised its estimate for global oil demand growth for a year ago, and said oil output would also continue to expand.

In Africa, production growth of 50,000 bpd - primarily from Ghana and Congo - is expected for 2018, to average 1.90 million bpd, according to the report.

The report projected that by 2020, the United States was set to become the largest global oil producer (overtaking Saudi Arabia until the mid-2020s), and resulting in a continued fall in USA oil imports, to the extent that North America would become a net oil exporter around 2030.

"The key conclusion of the meeting is we confirm once again the agreements, reached on November 29-30, for the current year", he said. However, due to the excessive oil dependence of OPEC members, these countries have faced severe fiscal deficits over the last couple of years because of extremely low oil prices.

OPEC stated that higher oil prices has resulted to further supply to market, mainly in North America and particularly tight oil, including unconventional natural gas liquids (NGLs).

Russia plans to continue joint coordination with OPEC countries on the oil market after the oil production cut deal is over, Russian Minister of Energy Alexander Novak said on Sunday. This forced the OPEC and its allies to revisit the duration and effectiveness of their production cuts. "Declines are accelerating in Venezuela, which posted the world's biggest unplanned output fall in 2017". This led to some profit taking, coupled with concerns about over-bullish futures positions for U.S. crude, the build in United States gasoline stocks, the decline in USA refinery runs and a firm USA rig count.

Mr Al Falih said the global economy's recovery and supply cuts have helped shrink global oil inventories and the oil market will return to balance in 2018. As Warner points out, around $55 a barrel is the breakeven point for USA shale-oil production, and it is coming back with a vengeance. The futures markets posted technically bearish closing price reversal tops which could trigger the start of a 2 to 3 week correction.

Other reports by Click Lancashire

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