OPEC oil output rises, complicating cartel's price-boosting plan
The International Energy Agency (IEA) said Tuesday that production from the Organisation of the Petroleum Exporting Countries hit a record high in September of 33.64 million barrels a day.
Last month, OPEC agreed to reduce daily output to between 32.5 million and 33 million barrels. The price of crude has gained about 15 per cent since that proclamation.
"Now the real work starts," IEA said in its monthly report. OPEC has not decided how it will achieve production cuts including which countries will agree to sacrifice output. They aim to draw up a plan before a meeting on November 30 in Vienna.
IEA said OPEC output increased as production from Iraq hit an all-time high and Libya reopened ports to export more crude. Production in non-OPEC member Russia hit a post-Soviet record.
As a result, the global supply of oil grew by 600,000 barrels a day in September, according to IEA.
While supply is running high, the IEA said demand is slowing along with the global economy a combination that could pressure oil prices. The IEA forecast that the market will remain oversupplied through mid-2017 if OPEC doesn't enact the cuts it pledged last month in Algeria.
"OPEC has abandoned its free-market policy set in train nearly two years ago. Global oil inventories are far too high in the view of some producers and they aren't being worked off nearly fast enough," the IEA said. "The current price of oil has caused discomfort for all producers."
The task of carrying out the production-cut pledge will be complicated if, as reported, Iran, Libya and Nigeria are exempted from the cuts for various reasons. The IEA said further increases from those three nations means bigger cuts would have to be made by others, such as Saudi Arabia, to hit the reduction target.
It's also unclear how much non-OPEC members, notably Russia, will play along. Russian President Vladimir Putin intimated at a meeting in Istanbul on Monday that Russia was ready to support OPEC, which further buoyed oil prices.
Oil prices hit their highest level in a year on Monday but fell Tuesday. In afternoon trading, benchmark US crude was down 64 cents to US$50.71 a barrel in New York. Brent, the international standard, fell 81 cents to US$52.33 a barrel in London.
Goldman Sachs analysts said oil prices could fall back to US$43 if OPEC fails to finalise an output-cutting deal in Vienna. Even if there is an agreement, they said, it is unlikely that it would balance supply and demand next year because of the chance that some OPEC countries won't abide by targets and that non-OPEC nations will boost production.
In the summer of 2014, oil was trading above US$100 a barrel, but increased output from non-OPEC countries, particularly the United States, created an oversupply. Instead of cutting production, OPEC opted to pump at high volumes to maintain market share and perhaps drive out US shale oil and gas producers, who have higher operating costs.