Canada oil output threatens to derail OPEC plan

Posted July 04, 2017

Crude oil futures continued to surge Monday, posting an eight consecutive daily advance, the longest such streak in months. According to the U.S. Energy Information Administration (EIA), domestic crude volumes have declined thrice in the last 8 weeks.

"This has been enough to encourage some guarded optimism among investors that the oil market is beginning to move back into balance", Cailin Birch, a commodities Analyst at the Economist Intelligence Unit, said in a statement.

Bank of America Merrill Lynch analysts cut their forecasts on Friday, saying the rise in output from Libya, Nigeria and US shale fields coupled with weaker demand growth, meant the market would be more oversupplied than previously expected. The investment bank cited higher-than-expected production from Nigeria, Libya and a swift rebound in US shale output.

"After all, our work shows that the typical Opec output cut takes 3 to 5 quarters to impact the term structure of oil markets, the cartel's stated goal when it agreed to curb production last December".

The UAE, for example, should run a small fiscal surplus even at Brent with $50 per barrel. "Is the market starting to react to the low-price environment?" said John Kilduff, founding partner at Again Capital. "As a result, we adjust our WTI crude oil forecasts to average $47 this year and $50/bbl next year, compared to $52 and $53/bbl prior".

WTI Crude production has helped to boost the number of rigs in operation to new highs, according to the latest Baker Hughes reports.

New data showed the first decline in the number of active US oil rigs in 24 weeks and fed expectations for further reductions in crude production. Last week, crude hit a 10 - month low as rises in output revived concerns about global oversupply. Does it point to decelerating US production, or is it just a blip before growth resumes again? Meanwhile, U.S. output has declined significantly, presenting a contrasting picture to the prevailing market conditions. The statistics show that prices went down 22 percent in the first half of this year thus indicating a bear market.

"The OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Zafiro (Equatorial Guinea), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela)". "All the same, it is still too early to see this as any kind of trend reversal".

Other sources confirm the decline as well: preliminary data by Reuters estimate that oil loadings from Russian Baltic Sea ports will decline by 13% to 2,1 million tonnes in the first 12 days of July.