OPEC Sees Non-Cartel Oil Supply Falling In 2016

Overnight, crude futures plunged to fresh seven-year lows after OPEC reported on Thursday that it pumped oil at its highest level in more than three years in November, exacerbating longstanding concerns related to the excessive supply glut on global energy markets.

The IEA, an energy monitor, said low prices are taking a toll on supply but producers haven’t yet scaled back enough to make a dent in stockpiles.

After a marathon session last week, Opec dumped its earlier production target of 30 million bpd and decided continue its policy of not constraining output.

According to the OPEC report, fall of oil supply to the global market is expected on all the countries of the former Soviet Union (FSU) in 2016.

Brent futures slipped below $US38 a barrel for the first time since December 2008 while WTI fell below $US35 a barrel and is rapidly approaching its GFC low of $US32.40.

The crude inventories US rigs Crude oil fell in Asia on Friday with expectations for any demand rebound thin in the face of significant over supply. A 0.6 mb/d decline is expected in 2016, as U.S. light tight oil – the driver of non-OPEC growth – shifts into contraction.

Many wells taken off the market will not return until the price gets stronger, but the industry is beginning to adapt to a “lower for longer” price scenario.

The IEA’s demand growth forecast for 2016 is 1.2 mln barrels a day, nearly in line with OPEC’s projections.

Saudi Arabia, by producing 10.25 mb/d of oil in the third quarter of 2015, ranked first among OPEC member countries in terms of crude production, followed by Iraq with 4.33 mb/d.

ANZ bank said on Friday that “crude oil markets will remain subdued in 2016, though prospects for a recovery look better in the second half of the year”.

“This is likely to keep pressure on oil prices in the short-term”, it added.

The IEA said OPEC’s decision last week to impose no ceiling on its output appeared to signal a renewed determination to maximise low-priced OPEC supply and drive out high-cost non-OPEC production regardless of price.

OPEC production rose to 31.73 million barrels a day in November, according to the IEA, more than 400,000 barrels a day above the IEA’s estimate of 31.3 million barrels for the 2016 “call” on OPEC production. Many in the market are hopeful that the next report from a major producer or one of the governmental energy agencies will show the turnaround is starting, but Friday’s IEA report is just another sign it is not, he added.

Finally, the below graphic is from the WSJ, making the case that consumer spending has been lumpy in response to lower gasoline prices, with vehicle and home sales up, but inflation-adjusted spending at retailers sluggish since mid-year.