(OILPRO) –
By Jeff Reed
View the original article on Oilpro.com.
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OPEC's monthly report showed that Russia's oil production reached a new high of 11.08 M/bpd in February (+10 K/bpd from January), and Saudi's output was 10.14 M/bpd (+14 K/bpd). In a certain sense, this is of course "more of the same." In another sense, it is highly revealing of the frequent disparity between words and actions in the current oil market.
Talking In Doha, Producing At Home
Thus even as Saudi Arabia and Russia met in Doha last month to discuss freezing oil production at January levels, production in each country was surpassing January levels. It's important to note, however, that "if others do so as well" was an important caveat to the Doha deliberations (expressed more insistently by Saudi than Russia, however).
Still, the symbolism of the uptick in production, coupled with Iran's insistence over the weekend that it will not even begin to talk about a freeze until it reaches 4 M/bpd (that's +600 K/bpd more than February per OPEC), has thrown a damper on expectations that a deal could be reached that could at least incipiently point towards balancing the market.
And the timetable for a meeting to discuss the matter has become even murkier. Some sources say a March 20 meeting is in the works, other sources point to an April meeting. Factoring in Iran's obstinacy, Saudi's "only if others do so" proviso, and Russia's push-pull stance on its own production plans and freeze commitment, the likelihood of a codified agreement looks dubious in the short-term.
Global Supply Fell In February
Despite the increases from Saudi, Russia and Iran, world oil supply declined by 210,000 bpd in February to 95.7 M/bpd, OPEC said. Within OPEC, Iraq (-263 K/bpd), Nigeria and the UAE also reported lower production last month.
Despite low oil prices, non-OPEC supply in 1Q16 was a higher-than-expected by 440,000 M/bpd to average 56.98 M/bpd, the report said. The expectation of reduced cash flow in 2016 has prompted many companies to cut capex and defer major new projects until a sustained price recovery can be maintained. OPEC therefore forecasts that non-OPEC oil supply will likely fall by 700,000 bpd this year (averaging 56.39 M/bpd). This reflects a minor downward revision of less than 10 K/bpd over last month’s prediction.
But...OPEC's Supply Growth Forecast Has Become More Uncertain
OPEC said its non-OPEC supply forecast has become increasingly uncertain in the last couple of months for several reasons.
The oil market has seen lower capital expenditure on the part of IOCs, as well as a fall in the US rig count, higher output from legacy wells than new tight oil wells, and intensified geopolitical tension.
However, "there has been a reduction in production costs, mainly in the US, as well as increased hedging, with producers choosing to produce with losses rather than stopping production."
2016 Demand For OPEC Crude Lowered
Demand for OPEC's oil last year was revised down by 100,000 bpd to 29.7 million barrels. The 13-member group also lowered its forecast of 2016 demand for OPEC crude by 100,000 bpd to a new average of 31.5 M/bpd.
"In 2016, demand for OPEC crude is expected to stand at 31.5 million barrels per day, 0.1 mb/d, lower than last month, and representing an increase of 1.8 mb/d over the previous year," the report said.
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