Saudi Arabia pumped close to a record amount of crude oil last month, leading the biggest surge in OPEC output in almost four years just as the U.S. shale boom shows signs of slowing, the International Energy Agency said.
The Organization of Petroleum Exporting Countries may extend its biggest output gain since June 2011 into next month as recovery in Libya and Iraq adds to the Saudi increase, the IEA said. Average U.S. oil production of 12.6 million barrels a day in the first six months of 2015 will slide to 12.5 million by the fourth quarter as companies curb drilling, the agency said.
Oil prices are about 45 percent lower than a year ago as OPEC keeps output elevated in response to booming shale production and rising Russian supplies. While the U.S. will still pump an extra 710,000 barrels a day of oil this year, unprecedented reductions in drilling mean growth will be about 25 percent lower than the IEA projected in November, before OPEC embarked on its policy to defend market share.
“OPEC’s core Gulf producers — led by Saudi Arabia — appear to be sticking with their defense of market share,” the Paris-based adviser to 29 nations said in its monthly oil-market report. “Lower oil prices and cuts in capex are starting to take their toll” on U.S. production.
BURDEN SHARING
Saudi Arabia, OPEC’s biggest member, raised output 390,000 barrels a day to 10.1 million a day in March, the highest since September 2013 and close to record levels, the IEA said. OPEC will only pare output to the rebalance the global market if other producers share the burden, Oil Minister Ali Al-Naimi said in Riyadh on April 8, reiterating a stance outlined since group’s Nov. 27 meeting.
The IEA cut estimates for North American oil production in the second half by 160,000 barrels a day. “Decreases in drilling rates and backlog of uncompleted wells point to slower production growth than previously expected,” the agency said.
Drillers in the U.S. have cut the number of rigs in service to the lowest since 2010, according to Baker Hughes Inc. The nation’s oil production will increase to an average of 12.52 million barrels a day in 2015 from 11.81 million last year, according to the IEA.
“OPEC are sticking to their plan, and that means low prices, which is weighing on U.S. production,” said Amrita Sen, chief analyst at consultants Energy Aspects Ltd. in London. “The plan of letting the market correct itself is working. The target was never shale directly — whoever cuts is fine.”
While shale drillers have responded more quickly than other producers to the price rout, they can also restore output more readily when prices recover, according to BNP Paribas SA and Citigroup Inc.
PRODUCTION GAINS
The Organization of Petroleum Exporting Countries raised output by 890,000 barrels a day to 31.02 million a day in March, the IEA estimated. The jump in output leaves the organization’s production about 2.5 million barrels a day higher than the 28.5 million a day of oil the world needs from the group in the second quarter, according the report. OPEC will next meet to review output targets on June 5 in Vienna.
Iraq restored output by 350,000 barrels a day to 3.67 million a day in March as improved weather in the Persian Gulf enabled the country to export a record 3 million barrels a day.
Libya revived production by 190,000 barrels a day to 480,000 a day even as conflict intensified between the country’s internationally recognized government in the east and a rival Islamist administration in Tripoli, the capital.
DEMAND STRENGTH
Iran’s crude exports rose to 1.27 million barrels a day in March, the highest in a year, amid rising purchases by China, according to the report. One of the biggest uncertainties for the market is whether the country will secure a deal with world powers that lifts sanctions on its oil exports, following a preliminary accord on April 2, the agency said.
While “unexpected pockets of demand strength” have emerged, it’s too early to say whether they will last, the IEA said. Global oil demand will increase by 1.1 million barrels a day this year to an average 93.6 million a day. That’s 90,000 barrels a day more than projected in last month’s report, reflecting both global economic recovery and especially cold winter temperatures in the first quarter.
“Stronger-than-expected demand in the first quarter might signal a faster recovery” or “might just as likely point to a slower one if pockets of demand strength prove short-lived and lead to weaker deliveries later on,” the IEA said.
Bloomberg