OPEC Capitulates, Forecasts Surge In Shale Oil Production As Saudi Output Rises

The biggest highlight in today's latest monthly OPEC oil market report for the month of May was OPEC finally capitulating to the "shale threat" and raising estimates for for non-OPEC supply growth in 2017 to 950Kbpd from the year prior, 64% or 370k higher than in the April estimate, amid a surge in U.S. output. In context, the outlook for non-OPEC growth is now 4 times higher than when OPEC announced cuts in November.

As shown in the table below, OPEC raised its 2017 U.S. supply growth outlook by 282kbpd in the past month, to 820k bpd.

The OPEC report also noted that OECD Inventories remains 276MM bbl above the five-year average. It also showed OPEC crude output declining by 2k bpd in April to 31.732m b/d according to secondary sources as 7 out of 13 members reduced output, however offset by a rebound in Saudi production to 9.954mmbpd, the highest since January. The biggest m/m changes:

  • Angola +97k b/d;
  • UAE, Libya -62k each
  • Saudi +49.2k b/d m/m to 9.954m b/d: OPEC secondary sources
  • Saudi +46.4k b/d to 9.946m b/d: Saudi direct comms to OPEC

The monthly report also kept its 2017 global oil demand growth forecast unchanged from previous month’s est. at 1.27m b/d y/y, suggesting that yesterday's warning by Vitol about a decling in global demand continues to fall on deaf ears.

Finally, in its "feature article", OPEC makes it clear that an extension of the supply cuts will be needed not only for H2 but into 2018:

A large part of the excess supply overhang contained in floating storage has been reduced and the improvement in the world economy should help support oil demand. However, continued rebalancing in the oil market by year-end will require the collective efforts of all oil producers to increase market stability, not only for the benefit of the individual countries, but also for the general prosperity of the world economy

... thus confirming that that the first 6 month supply cut has been a failure. Don't worry though, the second one will surely work even as shale continues to pick up OPEC market share.

Source: OPEC