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OPEC MOMR, monthly reports

Unread postPosted: Mon 13 Nov 2017, 13:36:19
by tita
OPEC is releasing a monthly report on oil markets that contains aggregate data from various sources about oil supply/demand and economic perspectives.
http://www.opec.org/opec_web/en/publications/338.htm

I was looking at the supply/demand balance part in the releases from jan to nov, and their recent numbers are quite bullish. In just two months, we went from a little bit oversupplied market (+0.06 MMbbls/d in Q2) to a strong deficit market (-0.47 MMbbls/d in Q2 and -1.3 MMbbls/d in Q3). The reason for this is because demand estimations for 2015 and 2016 have been constantly revised upward (+ 0.5MMbbls/d for each year from initial estimations), while the supply has not much increased. Add to this the upward revisions of demand forecast for 2017 (+1.53 in november instead of +1.16 in january), and you end up with an increasing deficit instead of a balanced market. These revisions have been going on all the year. If they continue, this imply that the deficit will increase.

They also forecast that the supply from non-OPEC producer will be mainly driven by the USA, increasing by 0.59 MMbbls/d in 2017 and 0.87 MMbbls/d in 2018 (both include NGLs). The other non-OPEC production staying the same. IMHO, they are quite right... more than the eia.

OPEC production has been quite stable, most members respecting the cuts while production growth from Iran and Lybia was compensated by the decrease of Venezuela. They have something like 1.2 MMbbls/d of cuts... And may be able to produce a little more than 34 MMbbls/d. Which is precisely the value of the demand minus non-OPEC oil production they forecast in Q3 and Q4 2018.

Which raise the million dollar question: What will they decide on their next meeting? Prolonging the pact till the end of 2018 while forecasting supply/demand deficit is a call for higher prices... And a boost for US shale production. Probably a 3 months extension is enough to keep the market happy, while the door is still open for an extension in their june meeting.

Re: OPEC MOMR, monthly reports

Unread postPosted: Mon 13 Nov 2017, 15:42:08
by Tanada
It all comes down to two things, what do they believe is in their best interest, and will the Middle East stay stable enough for their production to remain controlled as it currently is, or will someone break ranks trying for a quick profit?

Because in general terms their lifting costs are so small compared to the Shale producers in the USA the OPEC countries can easily set a target price and use the quarterly agreements on production to convince contract traders they are serious about that price whatever it is. If they set $60 or even $65/bbl as the price I think they can easily get it without overheating a new shale boom in the USA, and without much impact on crude demand. After all in the real world people were pumping nearly as much oil in 2014 and buying it all at $100/bbl for some time. It isn't as if a moderately higher price than the current level would be a shock to the system like it was back in 2006-07. Economically the OPEC countries want to get as much as they can for their crude without stifling demand growth or causing another USA fracking bubble like we got in 2014-15.

In truth another two or three years of world demand growth at recent rates and they will desire increased USA production because they will be able to pump flat out and still see prices going too high and set off another recession. Like any business they want to sell and recessions make that harder and less profitable. Since KSA declared they would defend market share in 2014 the OPEC nations have missed out on hundreds of billions of dollars they would have earned by reducing production and maintaining higher prices, but they could not see the future any better than I did in 2014. In 2014 I was thoroughly convinced of the red Queen problem for fracking and that the wells would be effectively dead after just five years. However it has turned out they have a very much longer tail after the initial three year production period than I believed, or that any of the doomsayers predicted they would have.

The debate now is to me the same as it was in 2013, how long until the USA runs out of places where fracking is worth doing? The second debatable item is, are there other new techniques ready to deploy after fracking peaks out that will get us another 15-20 years of growth the same way Fracking has done since 2009?