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Oil producers near to re-balancing market: Opec chief Mohammad Barkindo

Oil producers near to re-balancing market: Opec chief Mohammad Barkindo

A surge in US production is a major threat to OPEC's effort to reset the still-oversupplied global oil market.

"In one corner we have high output compliance, seemingly rising demand (apparently) and strong Chinese economic data but, in the other corner, we have the 1 million tonne elephant in the room and that is United States production and exports". Still, increased supplies from producers in the fourth quarter of 2016 is now "a dark cloud hanging over the market", and a failure to extend the output agreement would send prices "precipitously lower", they said. Even after taking into account production cut pledges from the eleven non-Opec countries, unplanned outages in Canada as well as in the North Sea, we expect production will grow again on a year-on-year basis by May.

OPEC has had a hard time reducing a global crude glut, as supply remains high in parts of the world, particularly the United States, where inventories were at 532.3 million barrels, only about 3 million less than the record reached in March.

"US drillers are recovering output faster than the market predicted and it's getting faster every day", Will Yun, a commodities analyst at Hyundai Futures Corp, said from Seoul.

Oil had rallied above $53 a barrel after some producers voiced support for prolonging a six-month supply-cut deal by the Organisation of Petroleum Exporting Countries and its allies.

Indeed, the Saudi energy minister, Khalid Al Falih, has expressed misgivings about carrying the main burden of the cuts while others get a free ride from the ensuing oil price rise.

Last November, OPEC members along with non-OPEC countries such as Russian Federation have agreed to reduce their daily output by 1.8 million barrels during the first half of this year in a bid to end the global supply glut. Opec's average compliance for 2017 is 99 per cent, it said. "These are sovereign decisions so people should not take [the cuts] for granted, but the fact they joined us in December is a huge success, and that they're gradually moving toward compliance also is a great success".

The surprise gasoline build, along with an increase in USA production and imports from OPEC nations, pressured prices. "The reality of rising U.S. output and massive inventories are weighing on prices".

"We are optimistic the policy measures have already placed us on the path of recovery", said Barkindo.

The Saudis boosted production to 10 million bpd from 9.7 million a day in the same time frame, but this is within the quota established by OPEC and was used as fuel in power plants and other facilities.

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