OPEC Production Hits Three-Year High As Oil Price Continues Slump

The latest confirmation that the oil cartel formerly known as OPEC is effectively non-existent, came a little over an hour ago when in its latest November monthly report, the Organization of Petroleum Exporting Countries reported that total monthly crude output for the member nations rose to 31.695 million barrels per day, the highest amount produced in three and a half years.

The production boost was driven not so much by the wildcard Iran (whose own supply will hit the global market in the near future) but by Iraq, as the second biggest oil producer in OPEC Pumped 4.3 million bpd, an increase of 247,500 barrels from the previous month, offsetting a modest 25,200 barrel decline from Saudi Arabia.

Bloomberg reports that Iraq has pushed output to record levels this year as international companies develop fields in the south, while the semi-autonomous Kurdish region increases independent sales in the north, according to the International Energy Agency. Production had dipped in October as storms delayed southern loadings and as flows through the northern pipeline were disrupted, according to Iraq’s Oil Ministry.

This was the highest monthly production since April 2012, and shows that even OPEC's recently announced production ceiling of 31.5 million barrels was already breached even before it was introduced.

Some other highlights from the report (link):

  • OPEC says in its monthly report that demand for its crude is at 29.4M barrels/day this year - lower than its current output and 200K less than previous estimates. But it's keeping 2016's demand view steady at 30.8M and still anticipates global demand rising about 1.25M barrels/day next year versus 2015's projected increase of 1.5M. OPEC cautions its "oil-demand forecast for 2016 is subject to considerable uncertainties--depending on the pace of economic growth, development of oil prices and weather conditions, as well as the impact of substitution and energy policy changes." - WSJ
  • OPEC trims supply estimates for outside the group in 2016 by 250K barrels/day to 57.1M as it expects the price plunge to take its toll on the US oil industry and other producers near-term. It notes US shale-oil production had been declining since April, and "this downward trend should accelerate in coming months given various factors, mainly low oil prices and lower drilling activities."  - WSJ

According to Global Risk Management oil risk manager Michael Poulsen, "Nothing much has changed even though the market has interpreted OPEC abandoning its output target as a signal that everybody will produce more." OPEC has been very happy to prove the "market" right, as the race to the production bottom goes full throttle.

As Bloomberg adds, "non-OPEC supply will fall by 380,000 barrels a day next year, averaging 57.14 million a day, with an expected contraction in the U.S. accounting for roughly half the drop, the organization said Thursday in its monthly report. It increased estimates for non-OPEC supply in 2015 by 280,000 barrels a day. The group maintained projections for the amount of crude it will need to pump next year at 30.8 million barrels a day."

Somehow we doubt OPEC's forecasts for non-OPEC supply falling will prove accurate especially if US shale contnues to rely on cheap junk bonds to fund its money losing operations as banks are terrified to reveal just how undercollateralized their loans to the sector are, while Russia continues to pump increasingly more in its own private battle to capture as many marginal buyers as it can in this period of major dislocation within the oil producers.

Finally, as can be seen in the chart below, the impact of the report was to promptly squash any hopes that oil may have had for even a modest price rebound today (at least until the algos take over 30 minutes ahead of the NYMEX close at 2:30pm in the well-documented "banging the upside close" phenomenon).