OPEC raises 2017 estimate for supply growth from rivals by 64%
LONDON (Bloomberg) -- OPEC boosted estimates for growth in rival supplies by 64% as the U.S. oil industry’s recovery accelerates, threatening the group’s attempts to clear a surplus.
Production from outside OPEC will increase by 950,000 bpd this year, OPEC said in a report, revising its forecast up by about 370,000. The projection is four times higher than in November, when the group announced a production cut to try and re-balance oversupplied world markets. Non-OPEC nations pump about 60% of the world’s oil.
Oil prices sank to a five-month low below $44/bbl in New York last week on concern that the cuts by OPEC and 11 partners, including Russia, aren’t clearing the glut and that more supply is coming from U.S. shale drillers. While OPEC has signaled it will probably extend the cutbacks into the second half, the increased production outlook for competitors may fuel speculation their strategy has backfired.
“U.S. oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices,” OPEC’s Vienna-based research department said in the report. “In addition to the growth in the U.S., higher oil production is expected in Canada and Brazil.”
The report echoed comments from officials such as Saudi Arabian Energy Minister Khalid Al-Falih and his Russian counterpart Alexander Novak that prolonged action will likely be required when ministers gather on May 25.
“Continued rebalancing in the oil market by year-end will require the collective efforts of all oil producers to increase market stability,” it said.
The organization raised its outlook for U.S. production growth by 285,000 bpd to 820,000 bpd. The number of drilling rigs operating in the country has more than doubled since May, data from Baker Hughes shows, as shale explorers emerge from a two-year rout buoyed by the initial price gains after OPEC announced its plan.
Original Projection
When OPEC introduced its 2017 forecast for non-OPEC supply last July, it had projected a contraction of 100,000 bpd.
The report indicated that OPEC’s objective to reduce inventories to their five-year average remains some way off. While it noted that surplus oil held at sea diminished, stockpiles in the most industrialized nations increased from the fourth quarter by 31 MMbbl to just over 3 billion. That’s 276 million above the five-year norm.
OPEC members are still sticking with their pledge to reduce output, the report showed. Production from all 13 members slipped by 18,200 bpd to 31.73 million last month, with Saudi Arabia continuing to pump below its official target.
