INTERACTIVE: Global 2017 oil supply revised up by OPEC on US production rally

11 May 2017 14:05 Source:ICIS News

Focus article by Tom Brown

LONDON (ICIS)--OPEC has revised up its 2017 global oil supply estimates for every quarter of the year, despite its own production cutbacks, as a result of growing US production, the Austria-headquartered cartel said on Thursday.

The group revised up estimated global non-OPEC oil supply growth for 2017 by 370,000 bbl/day to 950,000 bbl/day, driven by US output growth, to average 58.3m bbl/day for the year.

OPEC output of natural gas liquids (NGLs) and non-conventional oil production forecasts for the year were revised by up 40,000 bbl/day to 170,000 bbl/day. OPEC crude production dropped around 18,000 bbl/day in April on the back of production cuts, according to secondary sources.

Global oil demand was also revised 65,000 bbl/day higher for 2016 based on fresh data, to average 95.12m bbl/day, while 2017 demand , at 96.38m bbl/day, was left unchanged despite the projected uptick in supply .

Non-OPEC supply decreased across most markets in 2016 as lower oil prices led oil majors to slash exploration and production budgets, with US onshore rig count nearly halving year on year.

Reduced investment caused US oil output to fall during the year, but this trend has reversed in 2017 on the back of firming prices. The resurgence of the US shale gas sector has weighed on the slight oil price recovery seen since OPEC brokered a series of production cut agreements in December 2016 running through the first half of this year.

Oil prices rose above the $50/bbl level after the production cuts were agreed, holding at that level through most of 2017 so far, before Brent crude prices sank down to around $47/bbl, due in part to speculation over whether the increasing prominence of US shale output was eroding OPEC’s capacity to direct global pricing.

Brent crude pricing May 2017

A protracted drop-off in crude pricing soured investor confidence that an accelerated rebalancing of the oil markets is possible, OPEC said, leading hedge funds to dump nearly 20% of positions in Brent and WTI-linked futures contracts in late April.

Hedge fund positions dropped by 137m bbl to 614m bbl in the week to 25 April, one of the largest weekly falls on record. The ratio of bullish long positions to bearish bets has fallen from a peal of 10:1 in February to 4:1, OPEC added.

“Fund managers are now much less bullish about the outlook for crude oil prices than they were back at the beginning of the year,” OPEC said.

Crude futures prices have rallied this week, with Brent climbing to $51/bbl on Thursday, due in part to an unexpected drop in US stockpiles. However, questions still remain over the extent that an extension of OPEC’s production cut agreement past June this year can move prices upward, and of the impact to pricing if member countries fail to broker an accord.

Demand for OPEC crude in 2016 stood at 31.8m bbl/day, 2m bbl/day up from the previous year, while demand in 2017 is projected to be 31.9m bbl/day, according to the cartel.

The group’s global economic growth forecast was left unchanged at 3.3 for 2017.

By Tom Brown