Published: Sat, May 13, 2017
Business | By Jorge Reeves

OPEC Predicts Increase of Supply to Non-Member Countries

OPEC Predicts Increase of Supply to Non-Member Countries

OPEC on Thursday sharply raised its forecast for oil supply from non-member countries in 2017 as higher prices encourage USA shale drillers to pump more, hampering the producer group's efforts to clear a glut and support prices by cutting output.

But if rapid production growth in USA shale fields keeps prices in the US$50 to US$60 range, producers will need to reduce costs by another 20 to 25 per cent, the analysts estimate.

Global oil prices recently dipped briefly under $50 dollars per barrel for the first time since OPEC and Russian Federation scaled back output as concerns whether the deal would be renewed and the impact of rising output in the United States weighed on the market.

"We saw the biggest draw in (US) inventories for the year last week with stockpiles down more than five million barrels, and it looks like OPEC's production cut is finally biting", said Greg McKenna, chief market strategist at brokerage AxiTrader.

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Eleven Non-OPEC producers also are expected to extend their commitment to decrease oil output by 558,000 b/d. At the same time, lower long-dated oil prices could accelerate the shift into deficit markets by curtailing the market's ability to grow future production through forward sales, i.e. fear of long-term surpluses reinforces near-term shortages.

"The [US crude] inventories turned the heads of market participants towards the more positive side of things", said Eugen Weinberg, Commerzbank head of commodities research.

OPEC de-facto leader, Saudi Arabia, is increasingly unable to control the global oil supply because of rising energy production in the U.S., Russian Federation and Iran.

Oil fell as investors focus on all the production that OPEC can do nothing about. "We are short on products and we do not export crude", he said.

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Norwegian consultancy Rystad Energy said "U.S. oil production has gained significant momentum" and there was "limited downside risk in the short term".

Despite this, analysts warned that markets remained well supplied.

It also forced USA producers to become more efficient, and they can now withstand much lower prices than just a few years ago. A lack of infrastructure limits its exports, according to the U.S. Energy Information Administration. Their huge cuts in capital spending are now starting to show up in production and will affect global supply for years even if prices recover sharply.

The Wall Street bank said major oil companies have reduced costs by as much as 30 per cent since prices began to tumble in 2014, partly through widespread layoffs.

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"Crude oil production declined in the UAE, Libya, Iraq and Iran, but increased in Angola and Saudi Arabia", the 13-member cartel said in the report. By cutting costs and boosting efficiencies, US shale has made itself capable of profitably producing $50 per barrel oil.

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