Current glut, biggest threat to crude oil price recovery
Oil prices have lost about 40 percent in the past year as OPEC defends its market share against rivals, such as the US shale industry, which is faltering only gradually despite the price collapse. Oil inventories are growing because supply growth still outpaces demand, the 12-member exporters group said in its monthly report.
Faltering non-OPEC supply next year means that the amount of crude needed from OPEC is moving closer to the group’s actual output. About 31.3 MMbopd will be required from the organization in 2016, 460,000 less than it pumped in October.
Supply from OPEC’s 12 members was little changed last month at 31.76 MMbopd as declines in Iraq and Kuwait countered gains in Libya, Saudi Arabia and Nigeria, according to the report.
Global oil demand will climb by 1.8 MMbpd this year to 94.6 million amid the strongest growth in India’s consumption in more than a decade, according to the agency. Demand growth will ease next year to 1.2 MMbopd as the stimulus from cheap fuel fades and China’s economy remains “problematic.”
Oil companies have cancelled or put on hold projects around the world and OPEC expects output in the United States, the biggest source of non-OPEC supply growth in recent years due to the shale boom, to be hit by reduced drilling activity.
Underlining the current glut, OPEC said the market is in the midst of only the second period in a decade when inventories in developed economies have exceeded the five-year average by more than an “excessive” level of 150 million barrels. The first followed the 2008 financial crisis.
OPEC production, which has surged since the policy shift of November 2014 led by record Saudi Arabian and Iraqi output, fell in October on export delays in Iraq and lower supply from Saudi Arabia and Kuwait, said the report, citing secondary sources.
Stored crude oil hit 3 billion barrels
The International Energy Agency (IEA) said stored oil has hit 3 billion barrels because of strong production in OPEC and elsewhere, potentially deepening the rout in prices.
Total oil inventories in developed nations increased by 13.8 MMbbl to about 3 Bbbl in September, a month when they typically decline, according to the agency. The pace of gains slowed to 1.6 MMbopd in the third quarter, from 2.3 MMbopd in the second, although growth remained “significantly above the historical average.” There are signs that some fuel-storage depots in the eastern hemisphere have been filled to capacity, it said.
Unsold oil stuck on tankers, seen as new symbol of glut
As land storage sites worldwide reach brimming point due to a supply glut, tens of millions of barrels of oil are sitting on tankers looking for homes, threatening logistical paralysis.
Traders say the excess of crude is leaving tankers queuing at major ports worldwide, lengthening waiting times to days, weeks and even months. As of November 6, more than 20 million barrels of crude were sitting in vessels anchored outside the US Gulf Coast waiting to discharge, double the volume that typically discharges each week.
The lack of space to unload oil is tying up the tankers needed to keep oil moving, and wells running. The bottlenecks could force oil suppliers into quick, cut-priced sales just to free space, adding more pressure to oil prices already close to six-year lows.
Several traders said some ships may have arrived without a buyer, which can be hard to find as ample supply and end-of-year taxes push refiners to draw down inventories. At the same time, the steepening contango structure of the oil futures market – in which prompt barrels are priced at a discount to future contracts – has diminished the urgency to unload vessels.
The cost to hire a supertanker, each capable of carrying 2 million barrels of oil, recently hit its highest level since 2008 at over $100,000 a day last month and currently remains at over $70,000 a day.
OPEC sees oil surplus shrinking in 2016
OPEC said its oil output fell in October and forecast supply from rival producers next year would decline for the first time since 2007 as low prices prompt investment cuts, reducing a global supply glut.
In a monthly report, OPEC said it pumped 31.38 million barrels per day (bpd) in October, down 256,000 bpd from September. That is the first decline since March, according to OPEC figures.
The forecast of a decline in supply outside OPEC, if realised, would be a further indication the group’s strategy is working. OPEC last year abandoned a longstanding policy of propping up prices and instead raised output, seeking to recover market share taken by higher-cost rival production.
The group expects non-OPEC supply next year to fall by about 130,000 bpd, following growth of 720,000 bpd this year, “as nearly $200 billion of CAPEX cutbacks this year and next create a gaping supply hole”.
FRANK UZUEGBUNAM