OPEC Forecasts Market Rebalance In 2017 Despite Posting Massive November Output Numbers

Even though data from the Organization of the Petroleum Exporting Countries shows that production is continuing to rise, the cartel insists that its recently ratified cutback deal combined with higher than anticipated demand will rebalance the market in 2017.

OPEC in its latest monthly report helped justify this conclusion by amending its 2017 crude demand forecast, from 32.5 million barrels per day (bpd) to 32.6 million bpd.

However, the report also noted that members pumped 33.87 million bpd in November, up 150,000 bpd from October and the highest level since at least  2008, which not only contributes to the global glut ahead of the agreed-upon start date of January for the cutbacks, but also once again raises serious questions about the efficacy of the deal.

It also renders questionable statements made on Wednesday in Dhahran by Khalid Al-Falih, Oil Minister for Saudi Arabia: he told reporters that the agreement is "an unprecedented move that will be followed by a high level of compliance, and we will see that reflected on the supply-demand balance in 2017 and on the glut in the market."

The OPEC report maintained that the member and non-member cuts will help "accelerate the reduction of global inventories and bring forward the rebalancing of the oil market to the second half of 2017" – however, it failed to forecast in any detail what the market will look like if the cuts are implemented in full.

Nitesh Shah, commodities strategist with ETF Securities, told CNBC in an email that, "Communication from OPEC is confusing: we are somewhat skeptical that cartel and the non-cartel members will stick to their production targets, and the market may have over-priced the extent to which inventories will fall next year."

Another troubling development with regard to market rebalancing is Libya this week preparing to reopen two of its biggest oil fields and ship from its largest export terminal for the first time in two years – the start of a bid to almost double crude output to 1.1 million bpd in 2017.

However, skepticism and trepidation isn't solely directed at Eastern activities: in fact, U.S. drillers, who were not among the non-member nations to agree to any cutback, increased production by about 100,000 bpd last week to nearly 8.8 million bpd, according to the U.S. Energy Information Administration – and CNBC notes that, "a steadily rising four-week average for U.S. oil output points to an overall recovery."

John Kilduff, founding partner at Again Capital, said, "This is exactly what [OPEC members] had been worried about: this deal gave new life to the shale industry.

"OPEC's going to have its hands full with them for a time."

The International Energy Agency earlier this week stated that OPEC’s cutback may cause a switch from the surplus that has been building for the last few years to a relatively sudden deficit in the first half of 2017: it believes global demand growth next year will be 1.3 million bpd, or 110,000 bpd more than its previous estimate.