The oil price took a huge dive this week to reach five-year lows of less than $65 a barrel following an Opec meeting in Vienna.
Saudi Arabia pumped almost a record amount of crude oil in March, leading the biggest surge in the Organisation of the Petroleum Exporting Countries (Opec) output in nearly four years, as the United States shale boom shows signs of slowing, the International Energy Agency (IEA) said.
Opec may extend its biggest output gain since June 2011 into May as recovery in Libya and Iraq adds to the Saudi increase, the agency said. Average US oil production of 12.6-million barrels a day in the first half of 2015 will slide to 12.5-million by the fourth quarter as companies curb drilling, it said.
Oil prices are 45% lower than a year ago as Opec keeps output elevated in response to booming shale production and rising Russian supplies. The US will pump an extra 710 000 barrels of oil a day this year, but unprecedented reductions in drilling mean growth will be about 25% lower than the agency 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 defence of market share,” the IEA said. “Lower oil prices and cuts in capex are starting to take their toll” on US production.
Saudi Arabia, Opec’s biggest member, raised output by 390 000 barrels a day to 10.1-million a day in March, the highest since September 2013, close to record levels, the IEA said. Opec will pare output to rebalance the global market if other producers share the burden, said Oil Minister Ali Al-Naimi on April 8, reiterating a stance outlined at the group’s November 27 meeting.
The IEA cut estimates for North American oil production in the second half of 2015 by 160 000 barrels a day. “Decreases in drilling rates and backlog of uncompleted wells point to slower production growth than expected,” the IEA said.
Drillers in the US cut rigs in service to the fewest since 2010, according to Baker Hughes Inc. The nation’s oil production will increase to about 12.52-million barrels a day in 2015 from 11.81-million last year, the IEA said.
“Opec is sticking to its plan, that means low prices, which is weighing on US production,” said Amrita Sen, chief analyst at London consultancy Energy Aspects. “Letting the market correct itself is working. The target was never shale directly – whoever cuts is fine.”
While shale drillers have responded to the price rout quicker than other producers, they can also restore output more readily when prices recover, according to BNP Paribas SA and Citigroup.
Opec raised output by 890 000 barrels a day to 31.02-million in March. The jump in output means Opec’s production will be about 2.5-million barrels a day higher in the second quarter, the report says.
Iraq restored output by 350 000 barrels a day to 3.67-million in March and improved weather in the Persian Gulf enabled it to export a record three million barrels a day.
Libya revived production by 190 000 barrels a day to 480 000 as conflict intensified between Libya’s government and a rival Islamist administration in Tripoli.
Iran’s 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 market’s biggest uncertainties is if Iran will secure a deal with world powers to lift sanctions on oil exports, following a preliminary accord on April 2.
While “unexpected pockets of demand strength” have emerged, it’s early to say if they will last, the IEA said. Global oil demand will increase by 1.1-million barrels a day to about 93.6-million. That’s 90 000 barrels a day more than projected, reflecting global economic recovery and cold winter temperatures.
“Stronger-than-expected demand in the first quarter might signal a faster recovery” or “point to a slower one if pockets of demand strength prove short-lived and lead to weaker deliveries”, the IEA said. – © Bloomberg