OPEC forecasts oil market rebalances in 2016, helped by Nigeria, others

Organisation of Petroleum Exporting Countries (OPEC) says global oil supply and demand will start to rebalance from the second half of 2016, largely helped by outages from Nigeria.

Upsurge in militant activities by a group called Niger Delta Avengers knocked off over a million barrels of crude per day in Africa’s largest economy in the second quarter of 2016.

“Provided that there is a clearer picture regarding oil supply and demand, the expected improvement in global economic conditions should result in a more balanced oil market toward the end of the year,” the group said in its June Oil Market report released yesterday.

It further stated, “Shutdowns in Nigeria and Canada tightened the oil market markedly and brought supply and demand more closely into alignment earlier than many had expected, bolstering prices.

“Disruptions have been breaking out across the oil supply chain. Wildfires in Canada, rebel attacks in Nigeria, and a strike in France tightened supply. The rebalancing process in the crude oil market was also supported by a large volume of unplanned outages elsewhere on the globe, including a reduction in Middle Eastern and Latin American output. Nevertheless, there is still a massive global supply overhang.”

The Vienna-based research unit of the oil cartel projected an increase in global oil demand by 1.2 million barrels a day this year to 94.18 million a day, with India leading global demand.

“Other Asia, led by India, is anticipated to be the main contributor to oil demand growth in 2016. Similar to 2015, transportation fuels, supported by healthy vehicle sales and the low oil price environment, are projected to provide the bulk of expected growth. The 2015 growth estimate was also left unchanged at 1.54 mb/d to average 92.98 mb/d,” it noted.

According to the report, non-OPEC production will fall by 740,000 barrels a day from 2015 to 56.4 million barrels a day in 2016. It expects the downward revision in Canada, Brazil and Colombia broadly offset upward revisions in the US, UK, Russia and Azerbaijan.

OPEC predicts that US production this year will fall by 420,000 barrels a day from 2015 to 13.57 million barrels a day. US output will shrink by 150,000 barrels a day in the quarter 3 2016 compared with the first half as producers cut production due to a low oil price environment.

Oil futures rally in recent times; the report noted is buoyed by unexpected events, wild fires in Canada, resurgence of militancy in Nigeria, which has cut production to 20-year low.

 “These unexpected outages exacerbated other enduring supply concerns, particularly a decline in US shale oil production and export limitations due to regional conflict. The timing of these unplanned outages was ideal to buoy market sentiment, as they came just ahead of a seasonal, and therefore widely expected, global period of tightening in 3Q16. Oil futures’ strong performance was also supported by positively noted higher 1Q16 oil demand, particularly for gasoline,” the oil carted noted.