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IEA: If OPEC Doesn’t Cut, We’ll Drown In Oil

Rig

Various OPEC members have been busy looking for ways to get all members of the cartel to agree to a production cut, but outside the spotlight, as it turns out, they have been pumping ever-growing amounts of crude.

According to the IEA’s latest Oil Market Report released today, OPEC produced 230,000 bpd more in October, hitting yet another record with a total daily production of 33.83 million barrels. This, according to the authority, will make the task of cutting production more challenging than previously thought.

The proposed band for production that was hoped would help the market return to balance is 32.5-33 million bpd.

The challenge becomes nearly insurmountable in light of the OPEC members that caused the rise. These were Libya, Nigeria, and Iraq, where production hit an all-time high. The first two of these countries have been exempted from the production cut because of loss of market share unrelated to oil prices trends. Iraq is adamant that it should be exempted, too.

The situation is heating up, with Saudi Arabia last week flexing its muscles after playing the good and reasonable guy for a couple of months. According to OPEC sources cited by ZeroHedge, the desert kingdom threatened to turn up the taps and add to the glut. It seems Saudi Arabia is losing patience with its co-members, which are refusing to follow its lead at their own expense.

Related: Trump Presidency Could Be Good For Canadian Oil

“The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting,” the source told Reuters. That’s certainly food for thought and cause for pessimism, especially if we factor in Saudi Arabia’s ongoing fight against the Iran-backed Houthis in smaller neighbor Yemen.

In this context, it is difficult to continue believing a cut will be agreed to. What’s even worse, at least from the energy industry’s perspective, is that even if an agreement is forged through clenched teeth, it is unlikely to have any major effect on prices.

In the same report, the EIA said supply from non-OPEC producers, which so far this year have reduced output by an average 900,000 barrels a day, will rise in 2017. The rise won’t be tiny, either: EIA puts it at 500,000 bpd. This, Bloomberg reminds us, is a lot more than last month’s forecast non-OPEC supply increase of 110,000 bpd for next year. Apparently, a lot can change in a month, prompting the agency to revise its forecast so substantially.

Related: World Oil And Its Seven Biggest Chokepoints

On the demand side, things are still looking kind of bleak. The IEA kept its projection for a growth rate of 1.2 million bpd this year and the next, because of a slowdown in the Americas and China. It doesn’t seem like anything could turn things around, not even the renewed militant attacks against oil pipelines in Nigeria.

And still, says IEA, OPEC had better cut production, possibly on the basis that every little helps. Indeed, if Russia opts out of an agreement with the cartel, and with other big non-OPEC producers such as Brazil and Kazakhstan pumping consistently more crude, the glut that had barely started to ease this year will once again plunge prices into murky depths and traders into depression.

By Irina Slav for Oilprice.com

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  • JACK MA on November 10 2016 said:
    Saudi will not cut in November. They will postpone their 5% sale in the IPO. We will drown in oil for quite some time by design. Even if it's just paper oil, it will keep the pressure on Russia and the BRICS. You will never have a better opportunity to buy cheap but solid balance sheets on this petrodollar war. May I suggest Noble Corp and Diamond Offshore on a Trump promise to open up the bog blue ocean and the Artic for drilling. Also, Exxon is a great buy now and perhaps BP for the 7% yield.


    Saudi is doomed and it is a forgone conclusion that this is true as well as the fact that when they do cut some time late in 2017 that oil prices will remain low as they are no longer the swing producer really.


    I love this industry and the geopolitical aspect of it but I hate to see kids from the USA forced under order to murder million of people in the ME in the name of democracy. There is not much democratic about that. Warmest regards to all.
  • Windy on November 10 2016 said:
    Those of us who recall the Arab oil embargo during the early 70's can sweetly relish that what goes around, comes around.
  • Kieran on November 14 2016 said:
    The one thing that puzzles me is that the oil has to go somewhere every day, it is used or stored and it is a finite resource. So for two years we have had this 'glut' with so called over production, but there seems to be adequate storage capacity and ships in the world to move the oil around, I have not heard of anything overflowing or a lack of ships to fill up.
    If we do actually reach over capacity then all available storage in the world will be full, all ships will be full and customers will revert to buying just what they need and draw down from storage as required. This has not happened yet.................i'ts all a bit mystery but the story will change next year when the bears become bulls and climb out of their half empty or half full oil storage containers again to claim peak oil once again etc etc...and off we go to 60 - 70 oil.
  • John Brown on November 14 2016 said:
    I've been writing on blogs for a year that there is a glut of oil out there and no reason on earth for the price to be above $30 a barrel except for collusion. Collusion by everyone involved in the industry, not just the producers, to push the price up because the higher the price the more money they make.
    Oil is sloshing around and when you have even the IEA saying we are drowning in oil instead of trying to talk up the price at the behest of everyone else, like it has so frequently, than duh!!!!
    You gotta love all these reports produced by different parties all saying oil is going to rise, the glut is going to dry up, when they know that's NOTHING but wishful thinking. Wishful thinking that they are trying to get to become a self fulfilling prophesy.
    I'm just wondering what the next strategy will be to talk the price up toward $50 instead of having it at $30 where supply and demand would put it? I remember in the Saudi's at the Russians talking freeze, and pushing up the price as if that would have made a difference. Then we have the weekly/monthly supply storage reports as if drops up or down really make much difference when there is oil everywhere. Most recently its been OPEC although everybody knew major suppliers were rushing to bring more oil to market, not really cut it back. So the fact remains there is plenty of oil now, and there will be plenty of oil a year from now, and if the glut really does lesson and prices go up to $50 plus than with new technology it will only take month, not years to turn the production spigot back on.
    So we'll just wait to see what the next strategy is to jabber the price back up to $50 or better when there is no reason for it to be over $30?
  • R. L. Hails Sr. P. E. (ret.) on November 14 2016 said:
    The epic event was the election of Donald Trump. The second most important development is fracking. The results of these facts will mean, in a very short time, that North America will be essentially self supplying of hydrocarbons. This will break the monopoly of OPEC and change history in the Persian - Arab religious wars.

    There are a host of uncertainties, nuclear power plant licensing is one, robots in coal mines is another, but the world will be different in the future. IMHO, the US will again see an era of cheap energy and that means a great boon to our economy.

    One certain result of Trump will be a total reassessment of the climate change threat to the USA.

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