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OPEC sees weaker appetite for its crude as cut deal kicks in

London (Platts)--18 Jan 2017 1134 am EST/1634 GMT


  • OPEC Dec output drops to 33.085 mil b/d
  • Wary of higher prices leading to resurgent shale
  • Saudi sets precedent with sharp cut



OPEC expects demand for its own crude to fall this year but is mindful that the return of US shale could dent positive early signs on non-OPEC compliance with the landmark production restraint deal to rebalance the market, the exporters group said in its monthly oil market report Wednesday.

In a sign that OPEC is serious about sticking to its recently instated output agreement, the producer group said it produced 33.085 million b/d in December, down 220,900 b/d from November, with Saudi Arabia leading the way by posting a sizeable fall.

Related: Find more OPEC information in our news and analysis feature.

In its monthly oil market report, OPEC projected that the call on its crude for 2017 would be 32.10 million b/d, just below the target of 32.5 million b/d that the organization is aiming to hold production to under the deal, though exemptions for Libya and Nigeria could complicate the picture.

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Noting that non-OPEC supply cuts were "somewhat challenging," OPEC said it had seen "positive signs" of compliance with the pledged production cuts.

But it remains wary that US oil production could start "improving" as higher oil prices start to feed through to stronger rig counts and cash flows.

"The number of drilling rigs and reactivation of companies' spending are the two most important factors leading to an output surge in the coming months," it said.

Its US oil production forecast for 2017 was revised up by 230,000 b/d, as a move "towards higher prices may lead to a resurgence in US tight oil production from the most prolific shale regions."

Non-OPEC oil supply will grow to average 57.26 million b/d in 2017, up from 57.14 million b/d in 2016, OPEC said in the monthly report, an 180,000 b/d smaller increase than previously forecast because of reduced expectations for output from Russia, Kazakhstan, China, Congo and Norway.

SAUDI ARABIA LEADS THE WAY




On November 30, OPEC agreed to cut 1.2 million b/d from its October output for six months from January 1 and to freeze production at around 32.5 million b/d.

Although the output target included Indonesia, the Asian producer suspended its membership of OPEC and its production has been excluded from the group's December output figure of 33.085 million b/d.

In its monthly oil market report, OPEC projected that the call on its crude for 2017 would be 32.10 million b/d, just below the target of 32.5 million b/d that the organization is aiming to hold production to under the deal, though exemptions for Libya and Nigeria could complicate the picture.

In a sign it is leading the way in compliance with the agreed output deal, output from top producer Saudi Arabia is estimated to have fallen to 10.474 million b/d in December from 10.623 million b/d in November, according to figures published by the oil producer group in the monthly oil market report.

The Vienna-headquartered group officially uses secondary sources to monitor its crude production, but also publishes a table of production figures submitted directly by member countries.

Saudi Arabia told OPEC it produced 10.465 million b/d in December, a seven-month low and a fall of 254,700 b/d from the previous month.

Under the recent deal, the Saudis have agreed to bring output down to 10.06 million b/d between January and June.

The kingdom's output rose to record levels last year, with reported production above 10.6 million b/d for five successive months. In 2015, output averaged 10.193 million b/d, according to official data.

IRAQ CLIMBS TO NEW RECORD HIGH




OPEC's second largest producer Iraq said its average oil production in December jumped to a record high 4.83 million b/d, up 30,000 b/d from in November.

According to OPEC's secondary sources, Iraq's output in December was 4.632 million b/d, some 198,000 b/d less than Baghdad's number.

In the past few weeks Iraq has insisted it has "deliberate plans" in place to cut output as per the OPEC deal, under which its target is 4.351 million b/d.

Iraqi oil minister Jabbar Ali al-Luaibi said last week it the country had already cut 160,000 b/d and planned to cut oil output by 210,000 b/d by the end of this week.

However, exports from Iraq's State Oil Marketing Organization have been very high this year, with a company loading program showing that it plans to export as much as 3.64 million b/d of crude oil from its Persian Gulf terminals in February.

Iran, which is allowed to increase its production slightly to 3.797 million b/d, produced 3.72 million b/d in December compared to 3.71 million b/d the previous month, secondary sources said. The country did not report an output figure to OPEC for the month.

--Eklavya Gupte, eklavya.gupte@spglobal.com

--Robert Perkins, robert.perkins@spglobal.com

--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com

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