Record OPEC Output Accompanies News That All Members Will Attend Freeze Talks

All 14 members of OPEC will meet in Algeria later this month

News on Friday that all 14 members of the Organization of Petroleum Exporting Countries (OPEC) will meet in Algeria later this month to discuss market stabilization was accompanied by a disclosure from Bloomberg that OPEC production rose to a record 33.7 million barrels per day (bpd) in August.

In addition, Russia, which will also attend the freeze talks, increased production to over 11 million bpd, according to that country's energy ministry website – the first time that level has been reached in records dating back to 1991.

While OPEC in its latest monthly report cites "secondary sources" as saying its output dropped to 33.24 million bpd last month, some analysts are less concerned with minor output discrepancies and more with the notion that OPEC's full-tilt production has resulted in the cartel's spare capacity dwindling to the least since 2008.

David Fyfe, head of market research and analysis for Gunvor Group, noted, "There's no one, apart from Saudi Arabia, which has between 1 and 2 million barrels a day of spare capacity.

"The move from $50 to $60 to $70 a barrel could be a lot quicker than people think."

To which Seth Kleinman, global head of energy strategy for Citigroup, remarked, "The low oil price is doing the work of squeezing out that excess capacity in every link in the supply chain; the problem is that it's setting us up for a bullish oil market because we're just not sanctioning any oil projects from down here."

For the record, Gunvor sees oil prices rising to $70 next year as the prospect of a supply squeeze gets priced in; Citigroup's forecast is a more conservative $65.

But for the time being, prices are taking a beating due to glut worries, and futures dropped 2 percent at the end of the week due to headlines that Libya and Nigeria will boost exports possibly by the end of September.

While there has been doubt that the two strife-ridden countries will be able to resume exports to the degree they promise (an extra 300,000 bpd for each country), analysts note that any addition to the glut is bad news; Olivier Jakob, managing director at Petromatrix GmbH, remarked, "If you have some restart of Nigeria and some restart of Libya, then the rebalancing gets pushed even further out."