Less Demand, More Production, And More Surplus For 2017: OPEC

The cartel calculates that an average surplus of 760,000 bpd is likely.

Demand down 530,000 barrels per day (bpd) in 2017 and a larger than expected surplus are two of the more troubling disclosures in the latest monthly report released this week from the Organization of the Petroleum Exporting Countries, which also predicts more production from non-members in the near term.

According to the September report, the demand for OPEC crude will average 32.48 million bpd in 2017, down 530,000 bpd from the previous forecast, while total world demand is pegged at 95.43 million bpd (just slightly above 2016's figure of 94.27 million bpd).

If the 32.48 million bpd figures holds true, that means there will be an average surplus of 760,000 bpd – which is in stark contrast to the 100,000 bpd surplus predicted in OPEC's August report.

Moreover, OPEC calculates non-OPEC supply to rise by 200,000 bpd next year, compared to a 150,000 decline the cartel previously forecasted – and due mainly to the long-delayed Kashagan oil field finally starting up.

OPEC also reported a lower than expected 2016 decline in U.S. shale output; it stated, "It is expected that there will be higher non-OPEC production in the second half of 2016 compared to the first half."

As for OPEC production, the report disclosed that member output was near a multi-year high in August, at 33.24 million bpd, down a mere 23,000 bpd from July's figure.

But if all this seems to corroborate the argument from analysts that a true market rebalance is not coming any time soon, OPEC still believes that signs of higher-than-expected demand in some big consumers will contribute to "a reduction in the imbalance of market fundamentals" in coming months – although it did not go into detail or offer figures to support its statement.

In May, the Wall Street Journal reported that the banks it surveyed in 2015 predicting that Brent would exceed $70 per barrel in 2016 now believe it won't hit that mark until 2018 - which indicates that a true market recovery is still well into the future.