In its Monthly Oil Market Report for August, released Monday morning, the Organization of the Petroleum Exporting Countries (OPEC) noted that the cartel’s price for its reference basket rose by less than 1%, after dropping in July to break a five-month string of gains. The basket price rose $0.42 to $43.10 a barrel, after reaching a recent high of $45.84 in June.
Global demand growth for 2016 increased by 10,000 barrels a day to 1.23 million barrels per day, or a daily average of 94.27 million barrels. In its first forecast for 2017 demand growth, the cartel projected growth at 1.2 million barrels a day to average 95.3 million barrels. OPEC now projects 2017 demand to rise by 1.15 million barrels a day to 95.42 million, unchanged from last month’s report. Growth is expected to rise most in India, China and the United States.
The cartel raised its estimate of non-OPEC production for 2016, and now forecasts non-OPEC supply will drop by 610,000 barrels a day and average 56.32 million barrels a day for the year. Last month the cartel estimated non-OPEC supply would drop by 790,000 barrels a day. OPEC attributes the change to “a lower-than-expected decline in US tight oil and a better-than-expected performance in Norway, as well as the early start-up of the Kashagan field in Kazakhstan.”
The cartel said OPEC production in August, as reported by secondary sources, fell by 23,000 barrels a day to a daily average of 33.24 million barrels. The cartel has produced more than 33 million barrels a day in each of the past three months, led by an increase in Saudi production of 150,000 barrels a day during that period to a total of 10.62 million barrels a day. Iranian production has risen by nearly 50,000 barrels a day over the past three months to 3.65 million barrels a day, and Iraqi production is nearly flat at 4.35 million barrels a day.
The cartel also lowered its estimate of 2016 demand for OPEC crude from 31.9 million barrels a day to 31.7 million barrels a day in the August report. The cartel now forecasts the demand for OPEC crude at 32.5 million barrels a day in 2017. Combine that with an OPEC estimate that Russian production will rise to 10.99 million barrels a day in 2016, before easing to 10.94 million barrels a day in 2017.
Anyone still looking for a production freeze is probably whistling past the graveyard. Even a freeze at current levels of OPEC and Russian production will not be enough to raise the price of crude oil except in temporary spikes due to an unexpected event.
West Texas Intermediate crude for October delivery dropped by nearly 2.4% Monday morning to trade at around $44.80 a barrel. Brent crude for November delivery tumbled 2.2% to $46.96 a barrel.