MEC&F Expert Engineers : IEA Says OPEC Battle for Oil Market Share Only Just Started

Wednesday, May 13, 2015

IEA Says OPEC Battle for Oil Market Share Only Just Started


Published in Oil Industry News on Wednesday, 13 May 2015

Graphic for IEA Says OPEC Battle for Oil Market Share Only Just Started in Oil and Gas News
OPEC’s push to defend its share of the global oil market has just begun and the International Energy Agency said the group may further increase production, a strategy that caused prices to crash last year.

Gulf-based members of the Organization of Petroleum Exporting Countries are boosting supplies as they escalate a battle to preserve sales volumes, the IEA said in its monthly market report. 

While the U.S. shale oil industry appears to have “blinked” in the face of OPEC’s move, countries including Russia are coping better than expected with low prices and the agency increased its overall 2015 estimate for non-OPEC production.

Oil prices have recovered almost 50 percent in London from a six-year low reached in January as the surge in U.S. shale supplies that triggered a global glut lost momentum. The rebound, combined with reductions in production costs, may give shale producers “a new lease on life,” the IEA said. OPEC members, due to meet next month, are more united behind their November decision to maintain rather than cut production, Kuwaiti Oil Minister Ali Al-Omair said Tuesday.

“It’s hard to find anything for oil bulls to be joyful about in the IEA report, which tells a very comprehensive and indeed very negative story about the oil market,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “The first battle has been won by OPEC, but the second will go to shale oil as prices rise above $60 again and producers manage to cut their costs.”

Non-OPEC Resilience

Brent crude futures, the international benchmark, climbed 0.9 percent to $67.43 a barrel in London for a second day of gains. West Texas Intermediate advanced 1.1 percent to $61.44.

Global crude oil supply was a “staggering” 3.2 million barrels a day higher in April than a year earlier, the IEA said. The agency raised its estimate for non-OPEC supply growth in 2015 by 200,000 barrels a day because of “surprisingly strong” output during the first quarter from Russia, China, Colombia, Vietnam and Malaysia. Non-OPEC producers, which account for about 60 percent of global supplies, will expand output this year by 830,000 a barrels a day to 57.8 million a day.

While U.S. crude inventories have declined as production in the country “buckled,” supplies of refined fuels are now building up, the IEA said. U.S. product stocks increased in March, a period when they normally decline, it said.
The faster expansion in supplies outside OPEC means demand for the organization’s crude this year will be 300,000 barrels a day lower than previously forecast at 29.2 million barrels a day, the IEA said. That is 2 million barrels a day lower than OPEC production last month.

Market Share

“It would thus be premature to suggest that OPEC has won the battle for market share,” the Paris-based adviser to 29 industrialized nations said. “The move by the group’s core Gulf members last November not to cut production in defense of prices was only the first step in a plan that includes actually ramping up output and aggressively investing in future production capacity.”

Supply from OPEC’s 12 members increased by 160,000 barrels a day in April to 31.21 million a day, the highest since September 2012, partly because of higher output from Iran and Iraq, according to the report. Supplies from Saudi Arabia, Kuwait and the United Arab Emirates remain near the highest level in three decades. Group output will probably stay close to 31 million barrels a day this month, the IEA projected.

Iran raised production by 90,000 barrels a day to 2.88 million in April, the highest since international sanctions on its oil exports took effect in July 2012, according to the agency. Iraq boosted output by 100,000 barrels a day to 3.8 million a day, extending a three-decade high.

Saudi Barrels

Saudi Arabia, the world’s biggest oil exporter and OPEC’s most influential member, trimmed production slightly in April to 10.1 million barrels a day, according to the report. Sustaining output above 10 million barrels a day for a second month demonstrates the kingdom “is intent on maintaining its policy to preserve its market share,” the IEA said.

Total OPEC output is about 1.2 million barrels a day higher than the average of roughly 30 million a day that will be required in the second half, the report indicates. The group will meet to review its production target -- currently 30 million barrels a day -- on June 5 in Vienna.

The IEA increased its 2015 estimate for global oil demand slightly, by 50,000 barrels a day. World oil consumption will rise by 1.1 million barrels a day this year, or 1.2 percent, to average 93.6 million a day, according to the report.