OPEC forecasts slow down in NA shale output, 2016 ‘balanced market’

OPEC expects global economic growth to hit 3.5%, Russia and Brazil to move out of recession

OPEC is forecasting a more balanced market for crude oil in 2016 as the global economy picks up steam and supply from North American shale grows more slowly, according to the organization’s monthly report, released Monday.

Non-OPEC oil supply is expected to average 57.69 million b/d in 2016, representing a growth slowdown to 300,000 b/d from 860,000 b/d in 2015.

The global economy is expected to improve, with growth improving to 3.5 per cent, slightly higher than this year’s growth of 3.2 per cent. The OECD economies are expected to expand by 2.1 per cent in 2016, compared to 2.0 per cent in the current year. China is expected to decelerate to 6.5 per cent from 6.9 per cent in 2015, while India is forecast to reach higher growth at 7.7 per cent in 2016, compared to 7.5 per cent this year.

Both Russia and Brazil are forecast to move out of recession and risks to the global economic growth forecast appear to be slightly on the downside.

The improved economy means more oil demand, which will grow by 1.34 million b/d to average 93.94 million b/d next year. OECD demand is expected to register positive growth of 0.18 mb/d, while non-OECD consumption is projected to grow by 1.16 mb/d.

North American shale output expected to grow more slowly in 2016.

According to the report, OPEC calculates the call on its crude, plus movements in and out of stocks, as the difference between world oil demand (93.94 million b/d) and total non-OPEC supply, including natural gas liquids produced by OPEC members (63.87 million b/d), according to Platts. This leaves the call on OPEC at 30.07 million b/d in 2016 — a projected increase of close to 900,000 b/d over the current year, in which demand for OPEC crude is expected to climb by more than 200,000 b/d to 29.21 million b/d.

“This would imply an improvement towards a more balanced market. Better-than-expected momentum in the global economy, especially in the emerging markets, would contribute further to oil demand growth in the coming year,” OPEC said.

OPEC has increased production sharply as Saudi Arabia and other core producers in the Middle East Gulf attempt to grow market share, leading to higher inventories worldwide, according to Reuters.

Saudi Arabia pumped 10.56 million bpd last month, up 231,000 bpd from May, according to the OPEC report, which would be a record high.  Higher OPEC production has been a major factor behind a global collapse in oil prices, which are now around half their levels of a year ago.

The group’s production has been climbing in recent months following the Saudi Arabia-driven decision last November not to respond to collapsing oil prices by cutting output — and thus losing further market share to non-OPEC producers — but instead to maintain the official ceiling of 30 million b/d that has been in place since January 2012, according to Platts.