OPEC issues a cautious oil outlook despite declaring the glut to be over. File Image / Pixabay
News on Tuesday that the Organization of the Petroleum Exporting Countries (OPEC) has increased output toward the upper end of its self-imposed limits, combined with a statement from the cartel that it is uncertain about the oil market for the rest of 2018, resulted in an understandably mixed trading day, with West Texas Intermediate settling up 26 cents to $66.36 and Brent declining crude 60 cents to $75.86 per barrel.
Short covering in advance of OPEC's meeting in Vienna next week was also said to contribute support to prices, but it is unclear to what extent news that Venezuela has begun to shut in crude production (in order to cope with nearly replete terminal storage) will affect trading patterns in the days to come.
For the record, the Bolivian republic was producing about 1.5 million barrels per day (bpd) at the start of May, but output in early June has dropped to 1.1-1.2 million bpd, according to officials from state-owned PdV, which is the lowest monthly level in nearly 70 years.
Tamas Varga, strategist for PVM Oil Associates
They should increase production by at least 1 million bpd from the current level
Venezuela has repeatedly been cited as the reason OPEC members such as Saudi Arabia and ally Russia may pressure the cartel to alleviate its output restrictions in Vienna; and news on Tuesday that the Saudis increased oil output to a little more than 10 million bpd in May (from 9.9 million bpd in April), along with Russian production climbing to 11.1 million bpd in early June, suggests to some analysts that the stage is indeed being set to turn on the taps.
Greg McKenna, chief market strategist at AxiTrader, remarked, "This fits with the theory that the Saudis and Russians are subtly moving toward a change to the agreement at this month's meeting."
Tamas Varga, strategist for PVM Oil Associates, said he would support OPEC's decision to boost output: "I feel that if they would like to be a responsible swing producer for the global oil market, based on their (demand) numbers, they should increase production by at least 1 million bpd from the current level."
But as if to acknowledge the growing rift between members who want to boost production and others who are adamant about keeping the restrictions in place (to keep oil prices high and benefit their economies), OPEC on Tuesday released a report stating although the oil glut that spurred the restrictions has basically vanished, a faster-than-expected rise of 1.86 million bpd in non-OPEC oil production and chances of global demand weakening will make for an extremely uncertain rest of 2018.
The report noted that "While oil demand in the U.S., China, and India shows some upside potential, downside risks might limit this potential going forward."
OPEC left its global demand growth estimate this year unchanged at 1.65 million bpd and predicted that oil use would surpass 100 million bpd for the first time during the fourth quarter; it also said there is a "wide forecast range" of 1.7 million bpd in estimates of the amount of crude the cartel needs to pump in Q2 2018, meaning demand could be significantly more or less than members' current output.
The calm and collected reasoning of the OPEC report presumably doesn't impress analysts such as those at J.P. Morgan, which earlier this week forecast that in the longer term, the realization that crude demand will ultimately peak will cause OPEC and "big oil" to engage in a "battle royale" for market share, possibly leading to another glut and a collapse of oil prices.