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Tug of War: OPEC versus Global Crude Oil Inventories

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Part 3
Tug of War: OPEC versus Global Crude Oil Inventories PART 3 OF 6

OPEC’s Crude Oil Production: How It Could Impact the Surplus

OPEC’s crude oil production  

The EIA (U.S. Energy Information Administration) estimates that OPEC’s (Organization of the Petroleum Exporting Countries) crude oil production fell by 903,000 bpd (barrels per day) to 32.28 MMbpd (million barrels per day) in January 2017—compared to the previous month. OPEC’s production fell due to due to major producers’ production cut deal. Production fell 2.7% month-over-month, but rose 0.5% year-over-year. The fall in OPEC’s production would support crude oil (BNO) (PXI) (UCO) prices. Higher crude oil prices would have a positive impact on oil producers such as Marathon Oil (MRO), Bill Barrett (BBG), Bonanza Creek Energy (BCEI), and Continental Resources (CLR). For more on crude oil prices, read Part 1 in this series.

OPEC’s Crude Oil Production: How It Could Impact the Surplus

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OPEC and historic production cut deals  

OPEC’s crude oil production hit a record 33.7 MMbpd in November 2016. Production fell 4.3% from peak levels. As a result, prices rose 25% since September 2016. Below are the historic production cut deals for OPEC and non-OPEC producers since September 2016 to support oil prices.

An S&P Global Platts survey showed that OPEC producers had 91% compliance with its targeted output cuts in January 2017—above most market forecasts. On February 21, 2017, OPEC’s  Secretary General said that he expects 100% compliance among major oil producers to reduce output as part of the production cut deal. It means lower oil production in February 2017. Will it eliminate excess oil supply? OPEC and non-OPEC producers expect production to fall by 1.8 MMbpd between January 2017 and June 2017. The EIA estimates that the global oil supply and demand gap was at 1.56 MMbpd in 4Q16. The US, Libya, Nigeria, and Iran will likely add ~1 MMbpd in supplies in 2017. Also, OECD crude oil inventories are at record levels.

EIA’s crude oil production estimates in 2017 

OPEC’s crude oil production averaged ~31.6 MMbpd and ~32.5 MMbpd in 2015 and 2016, respectively. The EIA estimates that OPEC’s crude oil production will average ~32.7 MMbpd in 2017 and ~33.2 MMbpd in 2018.

Higher OPEC production could pressure crude oil (FENY) (SCO) (BNO) prices in 2017. However, OPEC’s production is expected to be ~32.5 bpd in the next six months due to the production cut deal. Read What Will Happen if the Oil Producer Meeting Succeeds? to learn more. The expectation of OPEC’s slowing crude oil production and possible extension of major oil producers’ deal could have a positive impact on crude oil prices in 2017. Unless demand catches supply, we could see a surplus in the oil market.

Next, we’ll analyze Russia’s crude oil production.

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