For the second month in a row, Saudi oil production both declined or rose, depending on which sources one believes, OPEC's latest market report showed.
Saudi's self-reported production declined by 111Kbbl/d from 10,011 to 9,900kbpd the lowest since January...
... even as secondary sources showed a second consecutive increase in production, from 9,809 in January to just why of 10mmpd in March.
And while Saudi production may be rising according to secondary sources, overall OPEC production declined driven by a steep drop in Libyan output where geopolitical developments have prevented the nation's oil fields from producing at capacity. Total OPEC output was said to have declined by -153k b/d (-0.5%) m/m in March to 31.928m b/d, as 9 out of 13 members reduced output. In addition to Libya, Venezuela crude production also extended its decline in March.
Curiously, OPEC said that while oil inventories shrank in developed nations as its production cuts took effect, it forecast that rivals in the U.S. shale industry are growing stronger. The cartel boosted estimates for U.S. production growth by 200,000 barrels a day, to 540,000 a day as a recovery in investment helps the nation’s shale-oil explorers resume drilling. The number of rigs in operation has more than doubled since May, according to Baker Hughes Inc., while government data shows U.S. production has recovered to its highest in more than a year Bloomberg reported. Overall non-OPEC production is now expected to grow by 580tb/d. From the report:
For 2017, non-OPEC oil supply is now projected to grow by 0.58 mb/d, up by 176 tb/d from the previous MOMR, to average 57.89 mb/d. This is due to higher expectations for US growth – revised up by 200 tb/d – along with lower declines in Colombia and China following revisions of 23 tb/d and 26 tb/d, respectively. Offsetting some of this increase are downward revisions to expected growth in Canada and Brazil has been adjusted down by 53 tb/d and 56 tb/d, respectively.
From the supply point of view, it is evident that there are many projects waiting to come on stream in the coming years. The period 2017-2019 is likely to see the largest production increase from mega projects in the industry’s history. Large projects in Brazil, Russia, Canada and the Gulf of Mexico are expected to reach completion and add to global supply between 2017 and 2019. Combined with new shale output, these projects could add another 1 mb/d in the coming years. Many of these projects, costing billions of dollars and taking many years to bring online, were initiated back when oil prices traded at $100/b.
In total, OPEC raised estimates for growth in non-OPEC supply for a third month, increasing its forecast by 176,000 barrels a day. The group sees rival production expanding by 580,000 barrels a day, more than four times the growth rate projected in January and almost half the amount its members pledged to cut.
The group predicted further new supply among its competitors in coming years, with the biggest-ever increases from multi-billion dollar “mega projects” in Brazil, Canada and the Gulf of Mexico that will reach completion from 2017 to 2019.
The report also showed most OPEC members moving closer to the production targets they set on Nov. 30 in an effort to eliminate excess supply. Compliance among the 11 members bound by the deal rose to 104 percent in March, as the United Arab Emirates moved closer to its ceiling, Venezuela delivered its full promised reduction and Saudi Arabia continued to cut by even more than required for a third month. Output from all 13 members declined by 152,700 barrels a day in March to 31.928 million barrels a day.
Meanwhile, on the demand side, OPEC kept its 2017 global oil demand growth forecast little changed at 1.27m b/d from 1.26m b/d previously.
“Despite some downside risks, general expectations for demand growth for oil products in the coming months remain bullish,” according to the monthly report from OPEC’s Vienna-based secretariat. “Healthy demand, together with the high conformity observed in OPEC and non-OPEC production adjustments, should enhance market stability.”
The oil market is now focusing whether OPEC will agree to another 6 month extension in production cuts when the current agreement expires in June. According to an overnight report from BofA, such an extension has already been priced in by the market.