Oil "Rebalancing" In Jeopardy After Iran Output Soars To Pre-Sanction Levels, Russia "Pours Cold Water" On OPEC Forecast

Earlier today, the OPEC released its latest monthly forecast which echoed what the IEA said yesterday, as the organization which Roseneft CEO Sechin said has "practically stopped existing", said shrinking U.S. output and massive cuts to investment in new projects will reduce the global oil glut over the course of this year, potentially pushing world-wide oil production lower than demand in 2017.

In the report, OPEC was eager to call the early demise of its non-OPEC competitors, and predicted that production outside of the (defunct) cartel countries will fall by 740,000 barrels a day from 2015 to 56.4 million barrels a day this year—10,000 barrels a day less than OPEC previously predicted. Most of the decline will stem from cuts that U.S. oil producers are making to cut production that is become unprofitable with the oil-price rout.

OPEC forecast U.S. production this year will fall by 431,000 barrels a day from 2015 to 13.56 million barrels a day. The rest of the predicted non-OPEC decline will come from lower investments and production delays in China, Mexico, the U.K., Kazakhstan and Colombia. Overall, oil companies world-wide will cut their exploration and appraisal investments during 2016, 2017 and 2018 to $40 billion annually, half the average annual spending of 2012 through 2014, the group said.

It said that “outside the U.S., there have been consistent signs of declines in non-OPEC production, which should likely flip the global oil market into a net deficit in 2017." In other words, OPEC thinks that OPEC's strategy to cut non-OPEC production is working.  As such, OPEC believes that production by countries outside the cartel will help rebalance a global crude market that is seen prices fall by more than half since 2014, even though OPEC has declined to rein in its own production.

Ironically, as non-OPEC production may (or may not) shrink by 740,000 barrels, Iran alone has already added that amount of production and then some.

As Bloomberg reports, Iran’s crude production has returned to levels last seen before sanctions were imposed over its nuclear program as the nation ramps up output to regain market share, according to the International Energy Agency. Output reached 3.56 million barrels a day in April, the highest since November 2011, and exports soared to 2 million barrels a day, just shy of the level before the trade restrictions. China was the biggest buyer of Iranian crude last month, taking more than 800,000 barrels a day, the IEA said. Indicatively, just a year ago, Iran's production was 700,000 barrels lower at 2.8 mm b/d.

Meanwhile, the biggest non-OPEC member disagreed with OPEC's rosy - if only for OPEC countries - assessment, when Russia poured cold water on the notion that recent falls in production in the Americas, Asia and Africa had wiped out a global production and storage overhang.  Russian Energy Minister Alexander Novak told reporters on Thursday that the global oil surplus stood at 1.5 million bpd and that the market might not balance out until the first half of 2017.