Opec and the US government’s energy forecaster both lowered their forecasts for oil output this year, underscoring the stalling impact that the oil price crash has had on producers.
In its latest monthly report, Opec forecast a sharper contraction in non-Opec oil supply this year of 730,000 barrels per day, expecting it to average 56.4 million bpd.
Meanwhile, the US energy information administration (EIA) said it now expects US production – which plateaued last year – to fall to 8.6 million bpd this year from an average of 9.4 million bpd last year, or 100,000 bpd lower than its previous forecast.
The EIA said US domestic output was 9 million bpd in March, down 90,000 bpd compared with the month before.
Opec warned, however, that there are not yet conclusive signs that the world market is moving back into balance because of weak economic recovery, plus the fact that some US production could be poised to come back quickly if oil prices continue to rise.
The world benchmark Brent crude oil futures hit a low of about US$30 per barrel in January and have since bounced nearly 50 per cent higher on indications that supply is coming down.
Brent was down 55 cents at $44.14 afternoon UAE time, with the lower world economic growth forecast by the IMF on Tuesday the main factor.
US oil output has been declining fairly steadily since it peaked at 9.6 million bpd in summer last year, with the shale oil sector hit particularly hard by the more than 70 per cent drop in oil prices from their mid-2014 highs near $115 per barrel.
The pain for smaller operators, which have been hit by cash flow shortages and a retreat in banks willing to lend to the sector, has been reflected in a sheer drop in the number of oil rigs in operation on the mainland.
But Opec, citing the oil data company Argus Media, noted that “oil and gas producers in Texas [have been] seeking hundreds of drilling permits [since the start of the year] in anticipation of a further recovery in oil prices … Permit requests could signal that operators are taking advantage of low-cost drilling to build an inventory ahead of an eventual recovery”.
There are many other questions overhanging the market. For example, the biggest importers – the US, China, Japan – all increased imports in recent months, but it remains to be seen if this trend is sustained or has been because of stockpiling by refiners or for strategic storage.
Still, the sustained decline in output has not been confined to the US, and Opec notes Latin America particularly as suffering setbacks.
“There is little doubt that fundamentals improve markedly from June onwards,” said Amrita Sen, a market analyst at Energy Aspects, highlighting the sharp fall in Latin American crude production.
“Even without including weakening Mexican output, total Latin American production fell below 8 million bpd in February and March, for the first time since March 2014,” she noted.
Brazilian and Colombian crude production is also down sharply on last year.
As for Opec itself, the producer group said production by its members was little changed last month at about 32.2 million bpd.
Iran’s higher production – according to unofficial sources – was the main increase last month, while this was offset by declines in the UAE, Libya and Nigeria.
Opec cites both unofficial and official data because of variable reliability. The UAE’s own data is thought to be reliable, however, and it reported a sharp fall-off in February – likely because of heavy maintenance at its main onshore fields – and that production was partially restored last month to 2.9 million bpd. That is still below capacity of 3.15 million bpd.
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