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OPEC Sees Rival Output Much Higher, U.S. Shale Capping Price Gains

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While it reported another month of high compliance with the cuts and a further reduction in its output, OPEC revised up on Thursday its estimates for non-OPEC supply growth this year, led by higher expectations for U.S. production growth.

In its Monthly Oil Market Report, the cartel revised its 2017 non-OPEC supply growth up by 373,000 bpd from the previous report, to 950,000 bpd. The revision was mostly due to higher expectations for U.S. growth – which was revised up by 285,000 bpd – along with higher growth in Canada, Norway, Brazil, Russia, Kazakhstan, and China, OPEC said.

With the pick-up in drilling activity, as well as increasing cash flow in the tight oil industry, US tight crude output is expected to rise quickly and increase by 614 tb/d for the year of 2017,” the cartel noted.

This month’s report by OPEC has a one-page featured article on non-OPEC oil supply development. In it, the cartel said:

“A large part of the excess supply overhang contained in floating storage has been reduced and the improvement in the world economy should help support oil demand. However, continued rebalancing in the oil market by year-end will require the collective efforts of all oil producers to increase market stability, not only for the benefit of the individual countries, but also for the general prosperity of the world economy.”

The article also touches upon U.S. production.

US oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices.”

Discussing the oil futures market, OPEC noted:

Oil futures on both sides of the Atlantic recovered, but their upward potential was still limited by US oil output resurgence. Pressure continue to come from bearish, unbalanced oil market conditions due to increasing US crude oil supplies and lower-than-expected inventory draws.”

Referring to the OECD commercial oil stocks – with one of OPEC’s stated goals bringing them back to the five-year average – stocks fell in March to 3.013 billion barrels, which is around 276 million barrels above the latest five-year average. So here the target is still off.

OPEC’s crude oil production dropped by 18,000 bpd from the previous month to average 31.73 million bpd in April. According to OPEC’s secondary sources, almost all producers are in line with targets or below them, with even Iraq – so far the member furthest off target - exceeding its quota by just 22,000 bpd. Saudi Arabia’s output slightly rose, but was still comfortably below the ceiling it had promised.

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But with the non-OPEC supply rising faster, most notably in the U.S., OPEC’s cuts so far and until June will probably not be enough to draw down the oversupply to a comfortable level.

Discussing the oil markets highlights and the futures market, OPEC said several times in the report that prices were supported by “expectations that the output adjustment could be extended beyond the middle of the year.”

By Tsvetana Paraskova for Oilprice.com

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  • Naomi on May 12 2017 said:
    Saudi Arabia should cap its oilfields for ten years. Oil price would return to $100/bbl. Shale oil drillers and US bank lenders would breath easy.

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