EMEA News
OPEC Output at 2017 High, Rising Libya Output Dampens Price Recovery Expectations
Last week's crude gains caused analysts to hope that market dynamics will soon shift towards a supply and demand rebalance; but of all the indications suggesting otherwise, one of the biggest is a Reuters survey revealing that output from the Organization of the Petroleum Exporting Countries (OPEC) - viewed by so many as the vanguards of output reduction - rose in June by 280,000 barrels per day (bpd) to a 2017 high.
While the survey found that high compliance by Saudi Arabia and Kuwait helped keep OPEC's adherence with its supply curbs at a historically high 92 percent in June, extra production from Nigeria and Libya boosted June output by an average of 32.57 million bpd, far above the overall production target.
Plus, Nigerian exports are expected to rise further in August to reach at least 2 million bpd, a 17-month high; meanwhile, Libya's output has now exceeded 1 million bpd, a four-year high.
Libya's production has been aided by an interim deal with Wintershall of Germany to resume production amid a contract dispute, and a source told Reuters that output should be stabilized "very soon."
Despite the troubling numbers, some experts still have faith in the cartel and are forecasting better times ahead.
Such is the case of Thomas Pugh, analyst for Capital Economics: he conceded that "Rising U.S. production will delay the market rebalancing until the end of the year," but he added that "the OPEC production cuts should be enough to bring stocks back to their five-year average, even with an increase in U.S. output."
Cailin Birch, an analyst at the Economist Intelligence Unit, agrees: "The nine-month extension should be enough to bring the market more into balance, provided that the rate of U.S. production growth does begin to slow in early 2018 and compliance by both OPEC and non-OPEC participants remains strong."
However, he went on to remark that "This will only be enough to scratch the surface of ample global stocks; as a result, we expect the production-cut agreement to be tapered off slowly in the second half of 2018, as an abrupt return to previous OPEC production levels would flood the market once again, driving down prices."
Last week, some experts warned that the second half of 2017 will likely see considerable market pain: Ira Epstein, senior market analyst at Ira Epstein Division of Linn & Associates, said a bounce will occur after the July 4 holiday weekend due to a delay in the demand cycle, but "watch out for September."
