OPEC Output Increases Again, Spurring Renewed Calls for Counter-Actions

The latest Organization of the Petroleum Exporting Countries (OPEC) report released Wednesday confirmed the worst kept secret among those analyzing the crude market: with yet another increase in output, this time a jump of about 393,500 barrels per day (bpd) to a total of 32.6 million bpd in June, the cartel is simply pumping too much oil.

Libya and Nigeria once again led the increases, but Iraq and Saudi Arabia also boosted production, the latter pumping 10.07 million bpd last month and exceeding its cap for the first time (a phenomenon that Sadad al-Husseini, a former executive vice president at Saudi Arabian Oil Co., attributed to millions of Muslims visiting the Kingdom because of the fasting month of Ramadan).

OPEC in its report admitted that its output exceeded demand in the first half of 2017, and continued increases in U.S. shale means supply will exceed the 32.2 million bpd the cartel expects will be needed next year.

Moreover, the report goes on to note that if current output is sustained, OPEC will oversupply world markets by about 900,000 bpd in the first quarter of next year.

The report was accompanied by more bad news on Wednesday, in the form of Amir Hossein Zamaninia, deputy oil minister for trade and international affairs for Iran, announcing that the Islamic republic's output will rise to about 4 million bpd by the end of this year (it currently produces about 3.8 million bpd).

Still, some experts take a dim view of the prospect that OPEC might consider deepening its cuts in order to improve market conditions: "Even if OPEC countries cut their production further and even if this causes prices to go up for a while, U.S. production will come to pressure the prices once again,” said Fatih Birol, executive director of the International Energy Agency.

Still, there's a growing consensus even among the most unlikely of candidates that some form of action must be taken: Emmanuel Kachikwu, oil minister for Nigeria, indicated that he is willing to cap production once his country can pump 1.8 million bpd without incurring militant attacks: “As a serious member of OPEC, we stand ready to support the cuts when we are sure that we can have a stable predictable production; you have to watch it for a couple of months to be sure that what you see as peace is in fact sustained."

Attending the World Petroleum Congress in Istanbul, Alexander Novak, oil minister for Russia, said of the OPEC cutback initiative, "If necessary, we can extend the agreement; if necessary, we can increase the amounts that need to be reduced or on the contrary, we can move to reduce them."

And then there are the ceaseless predictions that U.S. shale is heading for a drop, the latest forecast coming from Dan Yergin, vice chairman at IHS Markit, who told CNBC, "We will still see U.S. shale continuing to grow and being an important part of the supply, but I think this year you've got this really powerful rebound and it's baked in for the rest of the year."

He added that shale will experience "nowhere near as much growth" in 2018.

It's interesting to note that Yergin and Novak made headlines earlier this week by seeming to offer a new mindset with regards to the crude market, with both of them suggesting that oil in the $50s is the new norm and a fair value for the commodity.