Opec has raised its 2017 estimates for oil production from outside of the cartel as US shale drillers ramp up activity in response to higher prices, underlining the threat to the group’s attempts to balance the market.
Non-Opec oil supply is now projected to grow by around 400,000 barrels a day this year to average 57.7m b/d, Opec said in said in its monthly market report.
That marks a 300,000 b/d increase on its total forecast just one month ago and comes after a near 10 per cent drop in prices last week, as traders fret over shale’s potential to overwhelm the cartel’s own supply cuts.
“It seems that the oil supply recovery is gathering momentum in the world oil market, stimulated by gradually rising prices as well as improvements in drilling efficiency and well productivity in North America,” said Opec in its March report. Despite Opec’s broad compliance with a global agreement to curb supplies, oil stockpiles stand well above their five year average at more than 3bn barrels as production elsewhere ramps up and inventories remain bloated.
Last week oil prices plunged amid increasing anxieties among traders and analysts about how effective any production cuts will be to restoring the oil market to balance. Hedge funds reduced their bullish bets on the oil price. Brent crude, the global benchmark, has dropped by nearly 7 per cent this month to $51.79 a barrel while US marker West Texas Intermediate has fallen by almost 10 per cent to $48.73 a barrel.
Among producers outside the cartel, the biggest contributor in 2017 is expected to be the US, which will add 340,000 b/d. Brazil and Canada will increase by a higher level of 260,000 b/d; Kazakhstan by 140,000 and smaller non-Opec countries in Africa will add several thousand barrels. Opec’s collective production has fallen by around 1m b/d since the deal late last year to around 32m b/d in February.
This figure has been calculated by secondary sources, such as consultants and analysts, that submit assessments to Opec. The drop — led by cuts from Opec kingpin Saudi Arabia — comes even as conflict ridden Libya and Nigeria are exempt from the agreement and Iran has been given a special dispensation to increase its output slightly.
Although world oil demand this year has been revised higher, with growth at almost 1.3m b/d to average 96.3m b/d, there are concerns about the pace of the inventory drawdown. Opec had expected excess stockpiles to ease at a quicker rate than they have in the first few months of 2017, said Khalid Al Falih, Saudi Arabia’s energy minister last week.