RIYADH: Saudi Arabia told Opec it pumped slightly above its oil production target last month for the first time since output curbs were introduced in January, the cartel’s monthly report showed on Wednesday. The desert kingdom, which has led efforts to end the three-year old oil glut, said it raised its output to 10.07m barrels a day ahead of its peak domestic demand period, when more oil is directed towards power plants to meet soaring air conditioning demand in the summer months. The move by Saudi is not expected to signal it has abandoned attempts to tighten the market, but may attract scrutiny from the 14-member cartel it has pushed hard to adhere to the cuts. The 10.07m b/d it said it pumped in June was a 190,000 b/d increase on the previous month and about 12,000 b/d above a target it pumped well below in the first five months of the year.
Total Opec production jumped 393,500 b/d from last month, according to secondary sources that Opec uses to assess members’ production, led by Libya and Nigeria – who have been exempt from the cuts due to violence in their countries – and the inclusion of Equatorial Guinea, who joined the group in May. Iraq, Angola and Saudi all saw production rise. Oil prices slumped below $45 a barrel last month under the weight of the additional supply and as doubts have intensified about the effectiveness of Opec’s plan. On Wednesday, Brent crude oil was up 1.4 per cent at $48.19 a barrel, but remains down 15 per cent so far this year. US benchmark West Texas Intermediate was up 1.6 per cent at $45.75 a barrel. “A rebound in Libyan and Nigerian production added pressure to an already amply supplied Atlantic Basin due to a massive increase in US shale oil production, while demand from Asia was weaker on account of upcoming refinery maintenance and unfavourable arbitrage economics,” the Opec report said. The secondary sources, including consultants and industry specialists, pegged Saudi Arabia’s output at 9.95m b/d, still below target, suggesting some of the difference may be down to how the country tallied its own exports between May and June. The cartel’s monthly report indicates the group still faces an uphill struggle to balance output under the terms of its supply deal, which it inked with Russia and other non-Opec countries last year.
The group’s analysts forecast demand for Opec crude will decline by 100,000 b/d next year due to strong output increases in non-Opec countries that are not party to the supply deal, led primarily by the recovery in the US shale industry. They predict non-Opec supply growth will increase by 1.14m b/d next year. Combined with rising output of Opec members’ natural gas liquids, which are not covered by production targets, demand growth of 1.26m b/d next year will be more than met without the need for additional Opec crude. The cartel needs to remove at least 234m barrels of crude from inventories in developed countries to reach its goal of lowering stocks to the five-year average, implying the market needs to be in a deficit of more than 1m b/d between now and the expiry of the existing supply deal in March – though this could be extended.
Opec’s report said lower prices were so far not derailing the recovery in the US shale industry that has so far overshadowed their attempts to tighten up the market. “Current oil prices below $50 a barrel are likely to limit drilling activities and spending,” Opec said in the report. “[But] despite these developments, the pace of growth is expected to remain steady, with a minor upward trend expected in 2018. Although tight crude production is sensitive to price, US shale and tight oil producers have become more capable of producing in marginal breakeven prices”
