Opec is in for a surprise

Opec is in for a surprise! Opec Secretary-General Mohammad Barkindo said at the Atlantic Council Global Energy Forum that global oil inventories will start to fall by the second quarter of this year. But according to Opec’s own figures released in its latest Monthly Oil Market Report in December, the “call on Opec oil” is forecast to be 31.6 and 32.0 million barrels per day (mmbd) in the first and second quarters, respectively. Unless Opec produces its output to well below its ceiling of 32.5 mmbd, there is no basis for his forecast.

In the latest Short-Term Energy Outlook, the Energy Information Administration forecast that OECD global stocks will rise in both the first and second quarters of 2017. It estimates that stocks ended on December at 3.101 billion barrels, and will rise to 3.112 and 3.141 to end the first and second quarters, respectively.

Barkindo went on to say, “We have our target in accelerating those draw-downs to bring them closer to the five-year level — that is our target.” The five-year average OECD stocks as of December 2014, prior to the building of the current glut, was 2.666 billion barrels. The five-year average as of December 2016 was 2.792 billion barrels.

Total SA Chief Executive Officer Patrick Pouyanne said he expects that the decline in oil inventories will take two years.

But the EIA’s outlook through 2018 shows a different picture. It forecasts stocks will rise to 3.127 at end 2017 and 3.158 billion at end 2018. EIA assumes Opec crude production will average 33.2 mmbd in 2017 and 33.7 mmbd in 2018.

$50 oil is too low for almost all Opec countries to balance their budgets. But WTI in the $50s appears to have restarted American shale oil, if October’s data is correct.

Opec is going to need a more dynamic strategy to balance their budgets because higher prices will translate into lower demand for their oil, when American shale oil production kicks back in. This is the dilemma Opec faces, with no simple solution. [Robert Boslego – Seeking Alpha]