BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR
COOKIE NOTICE

Register with us today

and in less than 60 seconds continue your access to:Latest news headlinesAnalytical topics and featuresCommodities videos, podcast & blogsSample market prices & dataSpecial reportsSubscriber notes & daily commodity email alerts

Already have an account?

Log in to register

Forgot Password

Please Note: Platts Market Center subscribers can only reset passwords via the Platts Market Center

Enter your Email ID below and we will send you an email with your password.


  • Email Address* Please enter email address.

If you are a premium subscriber, we are unable to send you your password for security reasons. Please contact the Client Services team.

If you are a Platts Market Center subscriber, to reset your password go to the Platts Market Center to reset your password.

In this list
Oil

OPEC faces uphill battle to balance oil market

Natural Gas | Oil

So what happened at MPGC 2019?

Natural Gas | Oil

Platts Scenario Planning Service

Natural Gas | Oil | Refined Products | Shipping | Marine Fuels | Tankers

Bunker and Residual Fuel Conference, 16th Annual

Oil | Crude Oil | Gasoline

Trump Libya shift likely driven by oil, gasoline price fears: analysts

OPEC faces uphill battle to balance oil market

  • Commodity Oil

London — OPEC would need to boost its crude oil production by more than 1 million b/din order to balance the global market over the coming 18 months, according toan analysis of market forecasts.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

* OPEC needs to raise output over 1 million b/d to balance market

* Venezuela, Iran supply risks weigh

* Oil stocks could draw by 400,000 b/d in 2019

* EIA sees OPEC covering supply threat next year

As OPEC and its key oil producer allies prepare to meet in Vienna this week,the producers club is faced with a tough decision to offset the impact of USsanctions on Iran?s oil and further declines in Venezuelan output by raisingits production.

Assuming a 500,000 b/d OPEC production hike from July and a second 500,000 b/dincrease from October, global oil stocks could still see draws averagingalmost 400,000 b/d to the end of 2019, analysis based on the latestprojections by the International Energy Agency shows.

The IEA on Wednesday said it is expecting a gradual slide in Venezuelan outputfrom current levels of 1.36 million b/d to 800,000 b/d by the end of 2019. Italso sees US sanctions on Iran, due to begin in November, causing the loss of900,000 b/d of Iranian crude output next year.

Even on its own estimates, OPEC expects global demand to average 2 million b/dhigher in the second half of 2018 than in first six months of the year. As aresult, OPEC's figures suggest the market needs more than 33 million b/d ofits crude to balance the market in H2, compared to current levels of 31.7million b/d.

The figures suggest OPEC may need to consider making a larger rather than amore modest upward adjustment to production when it meets with Russia, andother key non-OPEC producers on June 22.

Output hike 'inevitable'

Saudi Arabia's oil minister Khalid Al-Falih said Wednesday he wants a gradualrollback of the group's production cuts, currently scheduled to run to the endof 2018. At the same time, Russia?s energy minister Alexander Novak said theOPEC-led producers could consider a phased reversal of up to 1.5 million b/dof combined production cuts.

A range of proposals are on the table, however, and price hawks Venezuela andIraq are not in favor of raising production, perhaps unsurprisingly, asneither has spare capacity and both stand to lose from weaker oil prices.

That OPEC and its key allies need to act to ease global oil supplies in thecoming months does, as Falih put it on Wednesday, seem "inevitable".According to the IEA's latest outlook, oil markets could be undersupplied bysome 1.5 million b/d over the next 18 months if OPEC fails to agree on aproduction increase this week.

Under that scenario, however, the production cut deal would at least unwind asscheduled at the end of 2018, returning part of the cuts to the oil market.Excluding Venezuela and Iran, that would mean some 1.3 million b/d ofadditional supply on the market compared to October 2016 levels when the cutdeal was agreed, according to S&P Global Platts estimates.

Still, with the loss of up to 900,000 b/d of Iranian oil next year andVenezuela oil-dependent economy in free-fall, oil markets would stillstruggle.

Capacity constraints

The potential supply shortfall is by no means clear and a significantdivergence existing between the IEA and OPEC forecasts.

According to OPEC figures, the group needs to raise output by 1.2 million b/din the second half of 2019 to 33.35 million b/d in order to balance the oilmarket.

Under the IEA's outlook, which is more bullish on non-OPEC supply and OPECNGLs, the "call" on OPEC's crude is actually 50,000 b/d lower in the secondhalf of 2018 than the 31.95 million b/d average in the first six months.

Both scenarios are more bullish, however, than the market balance outlookpresented by US' Energy Information Administration last week.

On Tuesday, the EIA said it expected OPEC crude output to increase slightly toaverage 32.1 million b/d in 2019, as falls from Venezuela and Iran are offsetby higher output from Persian Gulf producers, primarily Saudi Arabia. As aresult, the EIA forecasts global oil inventories will rise by 210,000 b/d in2019, which "will put modest downward pressure on crude oil prices in thesecond half of 2018 and in 2019

Nevertheless, the onus now falls on OPEC's few Middle East producers withspare capacity to offset expected losses from Iran and Venezuela.

"Volume increases look like they will be needed to avoid the market tighteningfurther in H2 2018," HSBC's head of oil and gas equity research Gordon Graysaid in a note last week. "The prospect of higher OPEC supply is alreadyfocusing attention not just on how concentrated spare capacity has become."

The Paris-based agency also estimates OPEC's spare capacity at roughly 3.41million b/d, with Saudi Arabia holding 60% of the total.

With Iran and Venezuela out of the picture, the group's spare capacity coulddrop to just 2.5 million b/d by mid-2019, the IEA believes, the lowest levelsince the end of 2016.

"It is possible that the very small number of countries with spare capacitybeyond what can be activated quickly will have to go the extra mile," theagency concludes.

--Robert Perkins, robert.perkins@spglobal.com