LONDON: Opec said its oil output surged in March, adding to a global glut, despite more evidence that the producer group’s strategy of letting prices fall to hurt other producers is taking effect.
Opec’s report may reinforce the perception that major producers are staking out market share ahead of a potential rise in Iranian exports following its framework accord with world powers over its nuclear programme.
Thanks to lower output from the United States and other rival producers due to the oil price drop, the Organisation of the Petroleum Exporting Countries said demand for its oil this year would be 80,000 barrels per day (b/d) higher than previously thought.Its monthly oil market report also confirmed industry estimates of a surge in Opec production in March, which jumped by 810,000 b/d — ten times the increase in 2015 demand for Opec crude — led by record output in Saudi Arabia and higher Iraqi exports.
“The strategy of Opec to put pressure on the high-cost producers is working, but the individual members seem to have moved off of that focus and are instead producing as much as they can,” said Jamie Webster, analyst at IHS in Washington and an Opec expert.
“Opec’s strong production growth points out that they still have the capacity and willingness to swing up — unfortunately the global market doesn’t require it at this time.”
Last year, Opec refused to cut its output despite a price collapse, seeking to recover market share by slowing higher-cost production in the United States and elsewhere that had been encouraged by Opec’s previous policy of keeping prices high at around $100 a barrel.
In the report, Opec raised the forecast demand for its oil to 29.27 million bpd in 2015. It now expects rival non-Opec supply to rise by only 680,000 b/d, a downward revision of about 160,000 b/d.
Opec, which pumps a third of the world’s oil, is more than filling the gap. According to secondary sources cited by the report, the group pumped 30.79 million b/d in March, an increase of 810,000 b/d from February.
Saudi Arabia, the driving force behind’s Opec’s refusal to cut output in 2014, told Opec it raised output to 10.29 million b/d in March, the highest rate on record.
If Opec keeps pumping at the same rate, the report indicates there will be an excess supply of 1.52 million b/d in 2015 and 2.78 million b/d in the first half — much more than the surplus expected last month.
Opec released its report a day after the International Energy Agency, which advises industrialied countries, also reported a surge in Opec production which it said could reflect a jostling for position over market share.
Crude inventories in the United States have ballooned to record highs, but Opec expressed confidence that these would be eroded by a coming rise in seasonal crude demand as well as lower output.
“Given expectations for lower US crude oil production in the second half of the year, these higher refinery needs will be partially met by crude oil stocks, reducing the current overhang in inventories,” Opec said. Reuters
NEW YORK: Crude oil prices jumped to fresh 2015 peaks yesterday, turning higher on news that a tribal group made up of former Al Qaeda militants took control of a major southern oil terminal in Yemen.
The terminal is one of the major hubs for the Hadramout region exporting an average of 120,000 to 140,000 barrels per day (bpd) of crude from fields in the area. While a relatively minor oil producer, Yemen’s escalating conflict raises concerns about neighbouring top oil exporter Saudi Arabia.
Brent crude for June delivery rose 66 cents to settle at $63.98 a barrel, rallying from a $62.00 low and reaching a 2015 peak for front-month Brent of $64.95. US May crude rose 32 cents to settle at $56.71, hitting a 2015 high of $57.42 after recovering from a $55.07 intraday low.
Brent’s premium to US crude was back above $5 a barrel, now comparing June contracts, after the spread narrowed to $3.34 intraday on Wednesday, the day Brent’s May crude contract expired.
“The report on Al Qaeda forces taking over facilities in Yemen sent prices up,” said Phil Flynn, analyst at Price Futures Group in Chicago. The dollar’s weakness also provided some lift for dollar-denominated crude oil prices.
Oil prices pulled back earlier when Opec said in its monthly report that its own output surged by 810,000 barrels per day (bpd) in March, even as low prices start to weigh on US production.
Crude futures surged on Wednesday, with US crude up nearly 6 percent, following government data showing the smallest weekly inventory build since the week ending January 2, suggesting that months of oversupply may be starting to ease.
Wednesday’s bearish US inventory data followed reports earlier in the week indicating production in the United States, including in shale play powerhouse North Dakota, was beginning to pull back as the price retreat since June weighs on producers.
Technical analyst Wang Tao told Reuters Global Oil Forum that Brent could rise towards $70 a barrel in the near term, but that a sharp downturn could happen after that. Reuters
