OPEC's crude oil production remained largely unchanged from November in December, but that was mostly thanks to a 50,000-bpd decline in Venezuela's production, as well as further cuts in Saudi Arabia, a Bloomberg survey of ship-tracking data, analyst opinions, and company information has suggested.
At 32.47 million barrels daily, OPEC's production is a hair below the 32.5-million-bpd ceiling it imposed on its members with the production cut agreement.
But OPEC should hold off on patting itself on the back. While Saudi Arabia and Iran cut their production in December by 20,000 bpd each, Libya's fell for reasons outside the control of the National Oil Corporation: a pipeline blast temporarily took off between 70,000 and 100,000 bpd off daily production. According to the survey data, Libya's average daily production decline for the whole month was 30,000 bpd.
Meanwhile, Nigeria raised its oil production by the same amount, effectively offsetting the Libyan supply disruption. All in all, one can't fail to notice that the 121-perent compliance rate OPEC is boasting with the pact in December was the result of accidents and an inexorable production slide in Venezuela, rather than conscious effort.
Now, since the start of the year Brent crude has crept up nearer to US$68 thanks to the Iran protests, and WTI has hit US$62 a barrel. This will certainly make it harder for those that can raise their production to resist doing just that, and since pipeline blasts cannot be scheduled-at least by the official authorities-the December decline may shrink at some point in the coming months, however fast Venezuela's production falls.
There is already talk about prices being too high to continue rising: some analysts argue that after hedge funds and money managers accumulated a record-high number of bullish bets on the commodity, the only thing they can do going forward is to start selling. If that happens, OPEC would need to rein in the cheaters to keep the cut deal going.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
The oil price is heading towards $70 a barrel and perhaps higher in 2018 and $100 in 2020 underpinned by positive indicators in the global economy. Whilst pipeline accidents and geopolitical events do give the price a push up, they can only do so when the oil market is re-balancing.
The world should get used to higher oil prices in the years to come. US shale oil production can no longer cap the price of oil as it did in 2016 and early 2017 and announcements by the US Energy Information Administration (EIA) about increases in US shale oil production can no longer deter oil prices from trending upward.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
I believe you have commented before on Oilprice.com. You seem like a very knowledgeable person. I hope you are correct that oil prices are headed to $70 a barrel in 2018. When you say that US Shale producers are no longer being able to cap the price of oil by increasing production are you taking into account that economics mean nothing to the shale companies? It seems that financial markets, private equity, and basically shareholders have consistently given many shale producers more and more money without requiring any real rate of return. If this continues the world will continue to be awash in oil, though the vast majority of it will be uneconomic. Thoughts?