Pro-Freeze OPEC Expected To Achieve Record High Output For September

OPEC is expected to have had record oil production for September

A new survey revealing record oil production, coupled with a disclosure that China may have a lot more oil stored that it admits to, may further dampen the jubilation that greeted last week's decision by the Organization of the Petroleum Exporting Countries (OPEC) to cut output.

A Reuters survey released on Friday indicates that OPEC's output will reach its highest in recent history in September, due to Iraq boosting northern exports and Libya reopening some of its main oil terminals – and despite top producer Saudi Arabia reducing September output slightly from its record summer highs.

September's supply from OPEC is calculated to be 32.65 million barrels per day (bpd), the highest since Reuters began keeping survey records in 1997; this figure excludes Indonesia and Gabon, the former contributing to the glut since its return to the cartel in 2015, and the latter having joined as a member in July.

Iraq's rise was due to state oil firm SOMO and Iraq's semi-autonomous Kurdistan region jointly exporting crude from the Kirkuk oilfield, raising the country's exports to 4.43 million bpd.

Meanwhile, the opening by the National Oil Corporation of three previously blockaded ports allowed AGOCO, an NOC subsidiary, to boost Libya's output.

The news adds to the growing disenchantment over the OPEC deal to reduce output from 33.24 million bpd to 32.5 million bpd: typical of the remarks made in the wake of Wednesday's summit were those of BK Namdeo, head of refineries at Hindustan Petroleum Corp Ltd., who said the cut "is not a very appreciable amount" and wondered which OPEC members will actually enact the cuts: "Any supply cut will be balanced by higher production by Iran, Libya, and Nigeria; Venezuela also cannot afford to cut production."

The disenchantment may further intensify if satellite images provided by Orbital Insight Inc. and obtained by Bloomberg prove reliable: the photos, which are used by private firms and processed by software that identifies oil tanks, suggest that instead of China having 500 storage tanks as previously recorded, it may have over 2,000 scattered throughout the country – which either means China has more oil stored than it admits to or has far more storage capacity, either scenario of which Bloomberg points out would have significant impact on the market.

But for the time being, the emerging realization that the OPEC freeze deal may not be all that's it's cracked up to be is enough to occupy the analytical community: Bjarne Schieldrop, chief commodities analyst at SEB, told media, "The agreement still leaves hard and difficult negotiations for the individual caps to be set.

"Now, with an OPEC curb on the cards for the first time in eight years, Brent crude is not even able to lift above $50 - at least not yet."

Earlier this year, analysts warned that China is importing so much crude (about 787,000 bpd, which goes directly into storage) that it could send oil prices below the $40 level.