OPEC data fan fears oil production cuts are in ‘jeopardy’
A monthly report from the Organization of the Petroleum Exporting Countries released Tuesday raised further doubts whether major crude producers will continue their efforts to rebalance the oil market.
U.S. crude production is on the rise and Saudi Arabia reported a climb its February output, according to the OPEC report. That put pressure on oil prices, which extended a lengthy losing streak Tuesday.
April crude fell 68 cents, or 1.4%, to settle at $47.72 a barrel on the New York Mercantile Exchange, for a seventh straight session decline. May Brent lost 43 cents, or 0.8%, to end at $50.92 a barrel on the ICE Futures exchange, down a sixth consecutive session.
At first glance, the OPEC data looked like good news for the agreement the cartel made with some major non-OPEC producers late last year that would trim overall production by roughly 1.8 million barrels a day.
OPEC said crude-oil production by its members in February, based on secondary sources, fell by 140,000 barrels a day from the previous month to average 31.96 million barrels a day. OPEC members had pledged to reduce their collective production to no more than 32.5 million barrels a day for six months starting in January.
Secondary OPEC sources also showed that output from Saudi Arabia was down about 68,100 barrels to 9.797 million barrels a day in February.
But according to figures provided by the Saudis to OPEC, the country produced 10.011 million barrels in February, up from 9.748 million barrels a day a month earlier.
“Saudi Arabia directly communicated that the country’s production returned above 10 [million barrels a day], which was actually more than 0.2 [million barrels a day] above OPEC’s own estimates,” said Robbie Fraser, commodity analyst at Schneider Electric.
But late Tuesday in Riyadh, Saudi Arabia’s Ministry of Energy, Industry and Mineral Resources issued a statement, in an apparent attempt to calm concerns, noting the amount of crude it supplied to the market actually fell — to 9.90 million barrels a day in February from 9.99 million in January.
The “difference between what the market observes as production, and the actual supply levels in any given month, is due to operational factors that are influenced by storage adjustments and other month-to-month variables,” it said in a statement.
Fraser said the Saudi statement was “a rather self-serving take.”
“Differences are to be expected, but the market isn’t going to treat oil in Saudi’s storage tanks the same way it views oil left in the ground,” he told MarketWatch. “I’d expect more logic twists and production hints over the near future, as OPEC members will likely look to rhetoric first to stall a further fall for oil prices.”
As part of the agreement reached between OPEC and some non-OPEC producers, including Russia, Saudi Arabia pledged to lower its output to 10.058 million barrels a day — taking on the largest portion of the cuts. Both of the Saudi totals in the OPEC report comply with that figure.
Still, “with U.S. oil production clearly on the rise, and a non-OPEC cut participation still limited, the incentive for Saudi Arabia to share an oversized portion of the deal’s overall burden has steadily faded,” said Fraser. “Ultimately, OPEC’s latest report raises more questions than it answers, and it appears that OPEC’s first coordinated supply deal in a decade is in jeopardy.”
U.S. crude oil output rose to 9 million barrels a day in February, up 430,000 barrels a day from September 2016, according to the OPEC report. Drilling activity by U.S. shale oil producers is picking up, with output likely to rise by 180,000 barrels a day to average 4.44 million barrels a day in 2017.
“When it comes to U.S. shale production, OPEC is waking up late — again,” Anas Alhajji, an independent energy expert and former chief economist at NGP Energy Capital Management, told MarketWatch.
The OPEC report had some good news, including expectations for a nearly 1.3% year-over-year rise in global oil demand this year to 96.31 million barrels.
However, “revising demand growth numbers up was countered by a larger revision in growth in North America’s oil production,” said Alhajji.