OPEC’s October record crude output casts doubts on freeze – IEA

LONDON (ICIS)–Crude oil output from producing cartel OPEC reached record figures in October only two months after it agreed to examine options to cap it, showing the “scale of the task ahead” if they want to achieve a freeze in production, the International Energy Agency (IEA) said on Thursday.

The 14 countries belonging to OPEC produced in October 33.83m/day of crude oil, up 230,000 bbl from September, according to figures from the Paris-based agency.

Moreover, it added November’s OPEC output is expected to remain at the same level.

OPEC members agreed in September in the Algerian capital Algiers to examine options to cap production from their wells to between 32.5m bbl/day and 33m bbl/day.

The IEA itself had said in its previous Oil Market Report the “real work” to curb production would depend on individual countries’ willingness to implement, as reportedly some OPEC members would intend to continue increasing their output, namely Iran.

Moreover, IEA said on Thursday Russia, a non-OPEC member which said it would consider joining the producing cartel to curb production, also reached record figures of production in October, pumping from its wells during the month 11.2m bbl/day, up 90,000 bbl/day from September and an “impressive” 420,000 bbl/day more than in October of 2015.

“We can’t predict the outcome of the [OPEC] 30 November meeting, but we can see the scale of the task ahead… This [October record production] means that OPEC must agree to significant cuts in Vienna to turn its Algiers commitment into reality,” said the IEA.

“Whatever the outcome, the Vienna meeting will have a major impact on the eventual – and oft-postponed – re-balancing of the oil market. But it is not the only factor at play. Unfortunately for those seeking higher prices, an analysis of the other components provides little comfort.”

The IEA said the little comfort would come from other crude oil production countries not belonging to OPEC like Brazil, Canada or Kazakhstan, with total non-OPEC output expected to rise by 500,000 bbl/day in 2017, compared to the fall of 900,000 bbl/day which is expected by this year’s end.

With producers stepping up output, demand growth expectations remain unchanged for 2016 and 2017 at 1.2m bbl/day, said the IEA, adding there was “little evidence” to suggest that economic activity will be sufficiently robust to boost crude oil demand growth.

However, the Agency said if OPEC members succeed in implementing their Algiers Accord, a rebalancing of the crude oil market could come as soon as 2017 but warned if some individual members go their own way and step up production, the global overhang of crude oil will persist.

As of October, for the second consecutive month, stocks of crude oil in the 35 developed countries belonging to the Organisation for Economic Development and Co-operation (OECD) decreased by 17.1m, although the total figure remains at 3,068m.

“If the OPEC countries do implement their Algiers resolution the resultant production cut will see the market move from surplus to deficit very quickly in 2017, albeit with a considerable stock overhang that will take time to deplete,” said the IEA.

“On the other hand, if no agreement is reached and some individual members continue to expand their production then the market will remain in surplus throughout the year, with little prospect of oil prices rising significantly higher.

“Indeed, if the supply surplus persists in 2017 there must be some risk of prices falling back.”

The IEA said market forces will ultimately do their job and crude oil prices will respond to the signals provided by supply and demand globally, but insisted it will be necessary for producers to increase their investment to meet rising demand in 2017 and beyond.

“Such investments ensure that the market remains close to balance and that prices are as stable and as fair for both producers and consumers as can ever be possible in such a dynamic industry,” it said.

Pictured above: An oil well in Saudi Arabia circa 1940’s. The country remains the dominant player within OPEC, pumping in October 10.55m bbl/day
Source: Glasshouse Images/REX/Shutterstock