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Page added on April 16, 2017

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OPEC Sees a World That Still Has Too Much Oil


The oil market is tipping slowly from glut to equilibrium, as output cuts from OPEC and 11 non-OPEC countries start to reduce crude flows.

It’s not quite there yet. Indeed, the grand “re-balancing” of supply and demand has yet to take place, although the International Energy Agency does at least believe “that the market is already very close to balance,” according to its latest monthly report.

Cutting Oil Supply
Output cuts are becoming more effective as non-OPEC participation improves
Source: Bloomberg
Note: Nigeria’s production fell below its October baseline in March, boosting OPEC’s output cut

What’s more worrying, and where the IEA’s number-crunchers differ sharply with their OPEC counterparts, is what happens next? Re-balancing is one thing, but the OPEC output cut was also meant to usher in a period when demand would start running ahead of supply, and when inventories would be reduced.

It’s here where there’s a hell of a discordance between the two groups, and even within the IEA’s own figures.

True, the volume of oil held in tankers — the most expensive storage option — has dropped. So, too, has the amount stored in commercial facilities in places such as the Caribbean and South Africa’s Saldhana Bay. U.S. crude inventories fell in the week to April 7 by nearly 2.2 million barrels. But before we get too excited, that was the first big drop this year. While refined product inventories in the U.S. are falling sharply, it’s really only the middle distillates (which include jet fuel, heating kerosene and gas and diesel oils) that are bucking typical seasonal trends.

The IEA shows global inventories falling at a rate of 200,000 barrels a day during the first quarter of this year. But its analysis of observed stockpiles — and there are plenty of places where volumes in storage are not easily counted — suggests “global stocks might have marginally increased” over the period. Confused? You’re not alone.

OPEC, which published its own monthly report a day before the IEA, paints a much less optimistic picture. It shows global oil inventories increasing by 430,000 barrels a day in the quarter just ended. No confusion there. The world is still over-supplied with oil, according to its biggest producer nations.

And the surplus is big. The IEA reckons about 986 million barrels of oil were added to global inventories in the last three years. OPEC puts the figure at 1.2 billion barrels. Some of that is needed to fill new pipelines and to provide operating inventory for new refineries, but most is merely the result of over-supply.

Swelling Stockpile

The outlook for the current quarter is no clearer. The IEA sees further progress, with demand for OPEC oil running about 1 million barrels a day ahead of production, implying a similar-sized stock draw. But OPEC sees a world with supply still running ahead of demand, which will add about 280,000 barrels a day more to inventories.

Stock Draws Ahead
Extending the output cut will draw oil out of inventory in the second half of 2017
Source: IEA, OPEC, Bloomberg

There’s one thing they both agree on, though. Things will change in the second half of the year (as the chart above shows). If the six-month output cut is extended, as seems likely, inventories could be drawn down at a rate of about 1.2 million barrels a day in the third quarter. But extending the cuts will be painful for producers. Many, within OPEC and outside, have brought forward planned maintenance (which involves shutting production) to help reach their targets. They won’t be able to repeat that trick later in the year.


8 Comments on "OPEC Sees a World That Still Has Too Much Oil"

  1. Boat on Sun, 16th Apr 2017 11:15 am 

    If OPEC wants to decrease world oil inventory not only do they need to extend the cuts but cut even further. If Lybia and Nigeria ever find peace OPEC would have to cut even more to compensate. Expect extending the cut talk for a couple of years.

  2. GregT on Sun, 16th Apr 2017 11:27 am 

    “If OPEC wants to decrease world oil inventory not only do they need to extend the cuts but cut even further.”

    BS. All they need to do is to keep producing it. Oil is a finite, non-renewable resource.

  3. Boat on Sun, 16th Apr 2017 11:41 am 


    Yo dumbass, the cuts were only to drive prices up. To wait for prices to rise during a glut and keep producing only a Canadian Jew hater would think of. Lol

  4. rockman on Sun, 16th Apr 2017 12:10 pm 

    “The oil market is tipping slowly from glut to equilibrium,” The market is in equilibrium and has been for a very long time. Equilibrium is the state when all the oil being produced is being bought. What isn’t being immediately consumed is going into storage…which is oil still being purchased for reasons other then immediate consumption. The IEA reports 48 mm bo going into storage last January. That represents only 1.6% of global production that month. But the latest report shows a 42 mm bbl decrease in global storage the last 4 weeks as of 14 April.

    Oil production not being in equilibrium would be the case when producers have to shut in wells due to a lack of buyers. And that has not been reported by the producers: every bbl of oil that is being produced is being bought by someone.

  5. GregT on Sun, 16th Apr 2017 12:28 pm 

    “The oil market is tipping slowly from glut to equilibrium,”

    “The market is in equilibrium and has been for a very long time……..every bbl of oil that is being produced is being bought by someone.”

    Not exactly rocket science, now is it. Amazing how some people are unable to grasp such a simple concept.

  6. rockman on Sun, 16th Apr 2017 11:34 pm 

    Greg – The problem all this time has been folks using the price of oil as an indicator of a “glut”. Which is fine: everyone can make up their own definition. But they should be upset if many reject it. They are certainly free to reject my definition of a glut: when producers of any commodity can’t sell their product no matter how low they set the price. That obviously hasn’t been the case the last 2 years: producers found enough buyers willing to pay the market price for oil that the world produced more then ever before in history.

    This is a very different dynamic then when we saw oil prices collapse in the 80’s. Producers lower their prices at a higher % then we just experienced. But consumers then didn’t respond by increasing consumption: their initial response was to decrease purchases. Eventually those low prices did stimulate increased consumption…but didn’t result in prices recovering for many years.

    Sound familiar? LOL

  7. yoshua on Mon, 17th Apr 2017 5:01 am 

    The oil inventory glut continues to grow despite the Opec “cut”.

    The oil price remains below the etp models: Maximum affordability curve of $54 for 2017.

    Putting a ban on the hated etp model didn’t help. The laws of physic still rules the oil production and the economy.

  8. Midnight Oil on Mon, 17th Apr 2017 7:08 am 

    Yoshua, look what the Fossil Fuel Industry has done…essentially put a BAN on the Scientific Community in regard to Global Climate Change!
    Putting a ban on the ETP model is small potatoes in comparison. Look has the reigns of power in Washington.
    BW Hill is spot on in one regard. The end of the oil age will hit us like the Wealthy Lady in the City of Rome the day before the Vandals came, with her Royal train of servants and opulent riches….you KN w the rest.
    Hint; It involves a fan

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