Published in Oil Industry News on Wednesday, 13 May 2015
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.
Source: www.bloomberg.com