OPEC Crude Oil Production Strategy Working

OPEC Crude Oil Production Strategy Working

OPEC, which has been exceeding its own Crude Oil production cap during the past year, says output was down in October and forecasts a production drop overall next year because of the persistent low price of Crude.

The cartel’s Monthly Market Report, published last Thursday, said its 12 members extracted an average of 31.38-M BPD last month, down by 256,000 BPD in September because of export delays in Iraq and lower production in both Saudi Arabia and Kuwait.

As for next year, the report said low prices are prompting energy companies not affiliated with OPEC to pare back on capital expenses by nearly $200-B.

As a result, non-OPEC output in Y 2016 will fall by an average of around 130,000 BPD, “a gaping supply hole” compared with the average growth of 720,000 BPD in Y 2015.

The report on OPEC’s production decline comes less than a month before the cartel meets on 4 December in Vienna.

Some producers have been calling for the group to abandon its price war with rival producers, particularly in the United States, and bolster the price of Brent Crude Oil, which has fallen from more than 110 per barrel in June 2014 to 44.66 bbl Monday.

The strategy championed by Saudi Oil Minister Ali al-Naimi, is working because OPEC is not only regaining market share it lost to rival producers, but also forcing those producers to extract less Crude Oil. Many of them rely on hydraulic fracturing, or fracking, to extract tight Oil from shale, and cannot  make a profit with the global price of Crude Oil so low and going lower.

OPEC’s #1 producer, Saudi Arabia, saw October production fall by an average 72,000 BPD to a little more than 10-M BPD. It was the 2nd month running that Saudi output had declined, following a surge during the Summer months, when domestic demand for energy is at its highest.

In Kuwait production fell by an average of 44,500 BPD to 2.688-M BPD.

OPEC’s strongest rival in Crude Oil production is the United States, whose production from shale in recent years began the trend of lower prices. The report said that while US production is declining onshore, there has been a recent rise in production in the Gulf of Mexico.

OPEC’s report cited data from the US Energy Information Administration (EIA) that, because of the low price of Crude Oil, on-shore production is down with just 1 of the 7 shale fields responsible for new production expected to increase output in December. “US Crude Oil production, particularly tight Oil output, reflects a price outlook that will weigh on Oil rig counts,” the OPEC report said.

In fact, Oilfield services company Baker Hughes (NYSE:BHI) says the US Oil rig count for October was 791, a decline of nearly 7% from September and almost 60% lower than it was in October 2014.

That drop may be offset by “strong growth” of Oil production in the US waters of the Gulf of Mexico. The report said production there rose to an average of 1.65-M BPD in October, an increase of 14.5% over October 2014.

The offshore deep water production is owned by Big Oil.

By Andy Tully

Paul Ebeling, Editor

HeffX-LTN

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