In its monthly report released Monday morning, OPEC said supply disruptions in Nigeria and Canada “brought supply and demand more closely into alignment earlier than many had expected, bolstering prices.” The report comes after the group’s reassertion of its market share defense strategy earlier this month at its biannual meeting.
Canada, Nigeria Yield “Unexpected Outages”
These unexpected outages will help the global oil market become more balanced in 2H16. “The excess supply in the market is likely to ease over the coming quarters,” the report said.
Militant attacks in Nigeria by the Niger Delta Avengers have brought oil production in the country to two-decade lows, unseating Nigeria as Africa’s largest oil producer. This violence was also the principal culprit for a drop in OPEC’s overall production last month by 100,000 bpd, according to secondary sources cited by the report. That puts OPEC’s May production at 32.36 M/bpd.
Disruptions “Across The Supply Chain”
OPEC noted that disruptions have been breaking out across the oil supply chain:
Wildfires in Canada, rebel attacks in Nigeria, and a strike in France tightened supply. The rebalancing process in the crude oil market was also supported by a large volume of unplanned outages elsewhere on the globe, including a reduction in Middle Eastern and Latin American output. Nevertheless, there is still a massive global supply overhang.
This overhang in 1Q16 was 2.59 M/bpd, the group said. Further, OPEC expects excess supply of 160,000 bpd in 2H if the 13-member group continues producing at current levels.
Non-OPEC Production Declines
Non-OPEC production is projected to decline by 740,000 bpd from last year to 56.4 M/bpd in 2016. “The downward revisions in Canada, Brazil and Colombia broadly offset upward revisions in the US, UK, Russia and Azerbaijan,” according to the report.
The group sees 2016 US production as dropping by 420,000 bpd from 2015 to 13.57 M/bpd. Total US output will fall by 150,000 bpd in 2H16 versus 1H as companies curb production due to low prices.
OPEC cited the slowing pace of US oil inventory builds, as well as improvement in global economic conditions, as additional signs that point to a more balanced oil market toward the end of the year:
To some degree, this has started to be seen in the slowing pace of inventory builds in US commercial crude stocks. In May, commercial crude stocks saw a draw of around 8 mb, compared to an average 12 mb build over March and April, and a 19 mb increase over January and February. Provided that there is a clearer picture regarding oil supply and demand, the expected improvement in global economic conditions should result in a more balanced oil market toward the end of the year. In the second half, demand for OPEC crude is expected to average 32.6 mb/d.
Demand Growth Forecast Unchanged
OPEC left its global oil demand forecast unchanged from its previous report. The group sees it increasing by 1.2 M/bpd in 2016 to 94.18 M/bpd.
Other Asia, led by India, is expected to be the main contributor to oil demand growth in 2016. Similar to last year, transportation fuels, supported by healthy vehicle sales and the low oil price environment, are projected to provide the bulk of expected growth.
Demand for OPEC crude in 2016 is projected at 31.5 M/bpd, unchanged from the last report and 1.8 M/bpd higher than last year.(Source: OILPRO, written by Jeff Reed)