Now that the production cut meetings have concluded, do we know how much crude needs to be produced by OPEC in 2017 to satisfy demand? According to PVM, OPEC and the IEA are not on the same page when it comes to supply & demand for the next calendar year. The IEA is predicting that OPEC needs to produce 33.60 mbpd of crude oil, while OPEC foresees demand being closer to 32.62 mbpd.
As most of you probably have guessed, OPEC’s balancing of supply/demand for crude oil is dependent upon more than just the United States, it depends on the whole world. The IEA sees global demand at 97.60 mbpd vs. OPEC’s projected demand of 95.55 mbpd. Why the disagreement?
OPEC fears that global oversupply could continue to be an issue in 2017 despite the many nations who have agreed to cut. Why?
There is currently a global overhang of about 300 million bbls. The underlying concern is that the countries who are not cutting production will be counterproductive to getting rid of the oversupply of crude oil. For example, Libya and Nigeria (who are both exempt from production cuts) recently increased their production by a combined 110,000 bpd.
In addition, Iraq (not exempt from production cuts) now plans on increasing production, contrary to its agreement to cut. Iraq's national oil company “SOMO” plans on increasing the amount of deliveries of its Basra oil grades by approximately 7% to 3.53 million barrels a day compared with October levels, according to an oil-shipment program viewed by The Wall Street Journal. Those oil shipments currently represent right around 85% of Iraq's exports.
There are more doubts surrounding global production, since OPEC raised its own production levels by 151,000 bpd in November, bringing it to 33.87 mpbd.
Now that OPEC production levels will decreasing and some non-OPEC nations will be increased production, some may wonder how easy it will be for the global oil market to correct itself. There is only one thing that is for certain, statistics will be watched closely in 2017, especially in the first quarter.
As of 12:02 p.m. ET, Heating Oil is down 72 points, RBOB is down 6 points and WTI crude is trading down 39 cents.