OPEC sees tighter 2017 crude market

Updated 12 July 2016
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OPEC sees tighter 2017 crude market

LONDON: OPEC has given an upbeat outlook for the oil market in 2017, saying global demand for its crude would be higher than its current production and pointing to a supply deficit rather than a sizeable surplus that has weighed on prices.
However, the Organization of the Petroleum Exporting Countries in a monthly report also cut its forecast for world economic growth this year, citing increased uncertainty following Britain’s vote to leave the European Union and said the pace of oil demand growth would slow slightly next year, in its first 2017 forecast.
“After the UK’s referendum to leave the EU, economic uncertainty has increased,” OPEC said in the report. “Potential negative effects have led to a downward revision of global economic growth in 2016 to 3.0 percent from 3.1 percent.”
Other forecasters including the International Monetary Fund have cut economic growth outlooks following the UK referendum. Concern about the economic impact of Brexit has weighed on oil prices, which at $47 a barrel have fallen from a 2016 high close to $53 in early June.
World oil demand will rise by 1.15 million barrels per day (bpd) in 2017, OPEC said, its first forecast for next year in the monthly report. That marks a slight slowdown from growth of 1.19 million bpd expected in 2016.
Oil prices have halved from two years ago in a drop that deepened after OPEC refused in late 2014 to cut output to support prices, hoping that cheaper oil would curb higher-cost rival supply such as US shale.
Despite a “dampening effect” of Brexit on the world economy next year, OPEC’s 2017 market outlook suggests the strategy is working as it expects oil supply outside the group to fall further, helping to boost demand for its own crude.
OPEC forecasts supply from outside producers will decline by 110,000 bpd in 2017 after an 880,000-bpd drop this year. The price drop since 2014 has hit non-OPEC supply as companies have delayed or canceled projects around the world.
Oil output from OPEC, adjusted to include returning member Gabon, rose 264,000 bpd to 32.86 million bpd in June, OPEC said. It expects demand for its crude in 2017 to average 32.98 million bpd, suggesting a supply deficit if OPEC keeps output steady.
Saudi Arabia told OPEC it raised output to 10.55 million bpd in June. The kingdom said it pumped 10.56 million bpd, a record, in June last year.
OPEC’s report points to a sizeable average surplus of 1 million bpd this year, but also to demand for its crude exceeding current production in the third quarter. The last full quarter when OPEC pumped less than demand for its crude was in 2013, according to past OPEC reports.
“The contraction seen this year in non-OPEC supply is expected to continue in 2017 but at a slower pace,” OPEC said. “Market conditions will help remove overall excess oil stocks in 2017.”


Saudi energy minister recommends driving down oil inventories, says supply plentiful

Updated 19 May 2019
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Saudi energy minister recommends driving down oil inventories, says supply plentiful

  • Oil supplies were sufficient and stockpiles were still rising despite massive output drops from Iran and Venezuela
  • Producer nations discussed how to stabilise a volatile oil market amid rising US-Iran tensions in the Gulf, which threaten to disrupt global supply

JEDDAH: Saudi Arabia’s Energy Minister Khalid Al-Falih said on Sunday he recommended “gently” driving oil inventories down at a time of plentiful global supplies and that OPEC would not make hasty decisions about output ahead of a June meeting.
“Overall, the market is in a delicate situation,” Falih told reporters before a ministerial panel meeting of top OPEC and non-OPEC oil producers, including Saudi Arabia and Russia.
While there is concern about supply disruptions, inventories are rising and the market should see a “comfortable supply situation in the weeks and months to come,” he said.
The Organization of the Petroleum Exporting Countries, of which Saudi Arabia is de facto leader, would have more data at its next meeting in late June to help it reach the best decision on output, Falih said.
“It is critical that we don’t make hasty decisions – given the conflicting data, the complexity involved, and the evolving situation,” he said, describing the outlook as “quite foggy” due in part to a trade dispute between the United States and China.
“But I want to assure you that our group has always done the right thing in the interests of both consumers and producers; and we will continue to do so,” he added.
OPEC, Russia and other non-OPEC producers, an alliance known as OPEC+, agreed to reduce output by 1.2 million barrels per day (bpd) from Jan. 1 for six months, a deal designed to stop inventories building up and weakening prices.
Russian Energy Minister Alexander Novak told reporters that different options were available for the output deal, including a rise in production in the second half of the year.
The energy minister of the United Arab Emirates, Suhail Al-Mazrouei, said oil producers were capable of filling any gap in the oil market and that relaxing supply cuts was not “the right decision.”
Mazrouei said the UAE did not want to see a rise in inventories that could lead to a price collapse and that OPEC would act wisely to maintain sustainable market balance.
“As UAE we see that the job is not done yet, there is still a period of time to look at the supply and demand and we don’t see any need to alter the agreement in the meantime,” he said.
US crude inventories rose unexpectedly last week to their highest since September 2017, while gasoline stockpiles decreased more than forecast, data from the government’s Energy Information Administration showed on Wednesday.
DELICATE BALANCE
Saudi Arabia sees no need to boost production quickly now, with oil at around $70 a barrel, as it fears a price crash and a build-up in inventories, OPEC sources said, adding that Russia wants to increase supply after June.
The United States, not a member of OPEC+ but a close ally of Riyadh, wants the group to boost output to bring oil prices down.
Falih has to find a delicate balance between keeping the oil market well supplied and prices high enough for Riyadh’s budget needs, while pleasing Moscow to ensure Russia remains in the OPEC+ pact, and being responsive to the concerns of the United States and the rest of OPEC+, the sources said earlier.
Sunday’s meeting of the ministerial panel, known as the JMMC, comes amid concerns of a tight market. Iran’s oil exports are likely to drop further in May and shipments from Venezuela could fall again in coming weeks due to US sanctions.
Oil contamination also forced Russia to halt flows along the Druzhba pipeline — a key conduit for crude into Eastern Europe and Germany — in April. The suspension, as yet of unclear duration, left refiners scrambling to find supplies.
Russia’s Novak told reporters that oil supplies to Poland via the pipeline would start on Monday.
OPEC’s agreed share of the cuts is 800,000 bpd, but its actual reduction is far larger due to the production losses in Iran and Venezuela. Both are under US sanctions and exempt from the voluntary reductions under the OPEC-led deal.
REGIONAL TENSIONS
Oil prices edged lower on Friday due to demand fears amid a standoff in Sino-US trade talks, but both benchmarks ended the week higher on rising concerns over disruptions in Middle East shipments due to US-Iran political tensions.
Tensions between Saudi Arabia and Iran are running high after last week’s attacks on two Saudi oil tankers off the UAE coast and another on Saudi oil facilities inside the Kingdom.
Riyadh accused Tehran of ordering the drone strikes on oil pumping stations, for which Yemen’s Iran-aligned Houthi militia claimed responsibility. 
Saudi Arabia’s minister of state for foreign affairs said on Sunday that the Kingdom wants to avert war in the region but stands ready to respond with “all strength” following the attacks.
“Although it has not affected our supplies, such acts of terrorism are deplorable,” Falih said. “They threaten uninterrupted supplies of energy to the world and put a global economy that is already facing headwinds at further risk.”
The attacks come as the United States and Iran spar over Washington’s tightening of sanctions aimed at cutting Iranian oil exports to zero, and an increased US military presence in the Gulf over perceived Iranian threats to US interests.