London — With oil prices some 25% higher than a year ago encouraging more drillers to get back into the game, especially in the US, OPEC on Monday was again prompted to concede that far more crude from outside the bloc would be supplied to market this year than it had previously expected.
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In its closely watched monthly oil market report, OPEC revised upward its projection of 2018 non-OPEC production to 59.26 million b/d, an increase of 1.40 million b/d from 2017 and up 320,000 b/d from last month's forecast.
Since its November report, OPEC has raised its non-OPEC output forecast by 720,000 b/d.
"The steady oil price recovery since summer 2017 and renewed interest in growth opportunities has led to oil majors catching up in terms of exploration activity this year, both in the shale industry and offshore deep water," OPEC's analysts wrote in the report.
The forecast for US crude output growth was revised upward by 150,000 b/d from January's report to average 1.30 million b/d.
Despite the higher prices, OPEC is still predicting another banner year for global crude demand.
The organization raised its projection for 2018 demand growth by 60,000 b/d from last month's forecast to 1.59 million b/d, citing a more positive economic outlook.
In all, the world will consume 98.60 million b/d of crude in 2018, the report stated, with China expected to consume 420,000 b/d more than it did last year, the biggest contributor to overall growth.
"Recently, healthy and steady economic development in major global oil demand centers was the key driver behind strong oil demand growth," OPEC said. "This close linkage between economic growth and oil demand is foreseen to continue, at least for the short term."
As a result, demand for OPEC crude will average 32.86 million b/d in 2018, the organization calculated.
Assuming OPEC keeps its production level at the 32.30 million b/d in January estimated by secondary sources used to independently track output in the report, the market will tighten significantly in the second half of the year, following stockbuilds in the first half.
OECD commercial oil inventories fell 22.9 million barrels in December and remain 109 million barrels above the five-year average, OPEC estimated. In terms of forward cover, the stocks represent 61 days of forward cover, 1.1 days higher than the five-year average.
"In line with the existing overhang, the market is only expected to return to balance towards the end of this year," OPEC said.
The report comes as OPEC and 10 non-OPEC partners led by Russia are coordinating on supply cuts of 1.8 million b/d from October 2016 levels to rebalance the market and bring OECD inventories down to the five-year average.
With oil prices having risen in the fourth quarter of 2017 and into 2018, much speculation has swirled over whether the OPEC/non-OPEC coalition would be inclined to end the production cuts early, though ministers have to date rejected any such suggestions.
A monitoring committee chaired by Saudi energy minister Khalid al-Falih overseeing the deal will meet in Saudi Arabia in April to review compliance with the cuts and assess market conditions.
OPEC's January output level, which was an 10,000 b/d decline from December, was some 430,000 b/d below their nominal ceiling of 32.73 million b/d, when each country's quota under the agreement is added up.
Venezuela saw the largest decline in production in January, 50,000 b/d down from December levels, to average 1.60 million b/d in the month, secondary sources estimated.
The crisis-wracked country, however, self-reported to OPEC a January output figure of 1.77 million b/d, up 150,000 b/d from December. Venezuela's quota under the deal is 1.97 million b/d.
Iraq was the biggest gainer in the month, adding 30,000 b/d of output from December levels to average 4.44 million b/d, according to secondary sources.
The country, which has a quota of 4.35 million b/d, self-reported January output of 4.36 million b/d.
Libya also saw a significant production rise in the month of 20,000 b/d from December levels to 980,000 b/d. Libya and Nigeria, which saw output fall 10,000 b/d to 1.82 million b/d, have a combined 2.8 million b/d cap under the deal, after having spent 2017 exempted from the cuts as they recovered from civil unrest.
Saudi Arabia, OPEC's largest member, pumped 9.98 million b/d in January, secondary sources estimated, matching what the country self-reported to OPEC. Its quota is 10.06 million b/d.
Iran, which is allowed to produce 3.80 million b/d under the deal, had output of 3.83 million b/d in January, according to secondary sources. It self-reported output of 3.82 million b/d.