OPEC compliance rate, Venezuela’s dip neutralises US production uptick

The EIA said this week that US oil production surpassed 10 mb/d in November, catching up with the crude output of the world’s second biggest crude producer Saudi Arabia. The US is the world’s biggest oil consumer and importer, Saudi Arabia still registers as the biggest crude oil exporter, while Russia is considered the world’s largest crude oil producer.

The surging US output is clear evidence that the shale industry is ramping up production at an amazing pace, and could spoil OPEC’s plans to balance the market.

However, high OPEC compliance and falling Venezuelan production offset the surging output from US shale and an uptick in inventories.

“The resulting cut by 467,000 b/d by Venezuela was almost five times as high as necessary, and is nearly enough on its own to explain OPEC’s substantial over-compliance. OPEC is, therefore, profiting considerably from the involuntary production outages in Venezuela at present, without which the oil market would be oversupplied,” Commerzbank said.

OPEC compliance with the production cuts in January stood at 138 percent. The meltdown from Venezuela offset the gains from Saudi Arabia and Nigeria.

Barclays estimates that Venezuela’s production could fall by 700,000 bpd this year, averaging 1.43 mb/d. The crisis continues to erode the country’s production base, a drop off that accelerated at the end of 2017.

Meanwhile, Goldman Sachs dramatically overhauled its forecast for oil prices this year, stating in a research note that the market is tightening much faster than expected. Moreover, the investment bank said that OPEC’s objective of bringing down inventories to the five-year average has probably already occurred.

“The rebalancing of the oil market has likely been achieved, six months sooner than we had expected.”

The bank predicts that OPEC will stick with the cuts for the first half of the year, which could tighten the market more than the group intends, and push prices up above $80 per barrel by the summer.

FRANK UZUEGBUNAM