OPEC Production Drop in August Accompanied by Predictions of an Imminent Price Recovery

Tuesday September 12, 2017

Production from the Organization of the Petroleum Exporting Countries (OPEC) fell for the first time since March thanks to several key exporters in the cartel, according to independent sources; 32.76 million barrels per day (bpd) was pumped in August, which is a 79,100 bpd drop from July.

However, the same sources told CNBC that rising production in two OPEC member countries - Libya and Nigeria - continues to complicate the cartel's effort to reduce the global glut to manageable levels.

Unsurprisingly, OPEC is augmenting news of the production drop with predictions of high demand and a tighter market in the near future: in its monthly report released Tuesday, the cartel stated that the world will need 32.83 million bpd of OPEC crude in 2018, up 410,000 bpd from its previous forecast.

The report said inventories are falling and that emerging backwardation supports the notion that market rebalancing is underway: "This is due to the shooting up of demand for prompt-loading barrels and amid increasing sentiment that the oil market will rebalance over the next year with a major drawdown in crude and product stocks.

"This first stirring of backwardation since oil prices were above $100 a barrel is seen as a sign of tightening supplies and strong demand."

As far as Nicolas Maduro, stalwart OPEC ally and president of Venezuela is concerned, OPEC is also coming up with good strategies to restore global oil prices, thanks to a discussion the cartel had on Monday with Algerian officials.

Maduro, who was in Algeria to discuss the state of OPEC's production cutback initiative, said, "We are progressing in agreements on recovering the governance of the oil markets and...restoring oil prices."

Apparently Maduro hadn't read the September 9 edition of OilPrice, in which energy specialist Gail Tverberg explained in length the many reasons why oil will not return to the $80 level - at least not for a sustained period; the reasons included production costs and worker productivity, industry investment, and the drop in commodity prices in general.

Even an OPEC member such as Kuwait, which frequently repeats the cartel's mantra that a market rebalance is just around the corner, has no expectation that oil prices will rebound in a meaningful way: last week its oil minister, Essam al-Marzouk, told media he expects prices to stay between $50 and $55 per barrel.