OPEC Production Rose Again in October, but Cartel Still Sees Rebalancing Next Year

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In its Monthly Oil Market Report for October, released Friday morning, the Organization of the Petroleum Exporting Countries (OPEC) noted that the cartel’s price for its reference basket rose by $4.98 a barrel (11.6%) last month to $47.87 a barrel.

Global demand growth for 2016 decreased by 10,000 barrels a day to 1.23 million barrels per day, or a daily average of 94.4 million barrels. The cartel’s projected demand growth for 2017 remained unchanged at 1.15 million barrels a day to average 95.55 million barrels.

The cartel lowered its estimate of non-OPEC production for 2016, and now forecasts non-OPEC supply will drop by 780,000 barrels a day and average 56.2 million barrels a day for the year. Last month the cartel estimated non-OPEC supply would drop by 680,000 barrels a day. The estimate for non-OPEC supply for 2017 dipped by 10,000 barrels a day to an average of 56.43 million barrels a day.

The cartel said OPEC production in October, as reported by secondary sources, rose by 24,000 barrels a day to a daily average of 33.64 million barrels. The cartel has produced more than 33 million barrels a day in each of the past four months, led by increases in production from Libya, Nigeria and Iraq. Iranian production has risen to 3.69 million barrels a day, compared with 4.56 million barrels a day from Iraq and 10.53 million barrels from Saudi Arabia.

The cartel also raised its estimate of 2016 demand for OPEC crude from 31.8 million barrels a day to 31.9 million barrels a day in the October report. The cartel now forecasts the demand for OPEC crude at 32.7 million barrels a day in 2017, up by 100,000 since the September report.

OPEC noted that inventory growth has slowed in 2016, with the supply/demand balance falling from 2.1 million barrels a day in 2015 to 1.1 million barrels a day in the first nine months of this year. The report explained what this means for 2017:

Looking ahead, it is important to consider the immediate impact that the assumed global supply/demand balance has on inventories, given the expected demand for OPEC crude in 2017 of 32.7 [million barrels per day]. Adjustments in both OPEC and non-OPEC supply will accelerate the drawdown of the existing substantial overhang in global oil stocks and help bring forward the rebalancing of the market.

Maybe that will happen as OPEC foresees, but it’s not a slam dunk.