Oil market rebalancing at slower pace: OPEC

Oil market impacted by rising US production

The Organization of Petroleum Exporting Countries released a report on Tuesday that said the rebalancing of the oil market was happening at a “slower pace” than the cartel had hoped.

OPEC data showed output from the group itself jumped in May due to production increases in Libya and Nigeria, two countries exempt from the cartel’s supply cut pact.

According to the report, OPEC output grew by 336,000 barrels per day (b/d) last month to 32.14 million b/d.

With the increase, OPEC is producing more crude that its forecast average of global demand for its oil this year.  The increase is hindering efforts to rebalance the oil market, but with volatility in Libya and Nigeria, the gains may not last.

Another roadblock to a rebalancing of the market is increasing US production.

“The rebalancing of the market is under way, but at a slower pace, given the changes in fundamentals since December, especially the shift in U.S. supply from an expected contraction to positive growth,” OPEC said in the report.

After the report was released, oil prices gave up gains on Tuesday, trading near $48/barrel, well below the $60/barrel OPEC producers would like to see.

Reuters calculated compliance of over 100 per cent by participants in the OPEC supply cut pact last month.  OPEC did not publish a compliance number.

According to OPEC, oil stocks in industrialized nations fell in April, however, they remain 251 million barrels above the five-year average.

Saudi Arabia reported a decrease in its production by a further 66,000 b/d in May to 9.88 million b/d.  A Reuters report released Wednesday says Saudi Arabia will cut its exports to below 7 million b/d this summer.

Energy Minster Khalid al-Falih said last month that shipments were set to drop from June, particularly to the US.  The OPEC kingpin nation is hoping to limit supply to help balance the oil market.

In its estimates for this year, OPEC cut its forecast for oil supply growth from producers outside the cartel to 840,000 b/d from 950,000 b/d.  As well, it reduced US production growth to 800,000 b/d.

With these lower supply estimates, OPEC raised the forecast demand fro its crude in 2017 by 100,000 b/d to 32.02 million b/d, below its May output.

But, if the recovery in Nigeria and Libya continues, and other countries do not cut production, the market could remain in surplus which could lead for calls for Nigeria and Libya to have their output capped.

OPEC says it is currently too soon to make that decision.