2 countries projected to add over 400,000 bpd in 2017
IT was always an ill advised decision, in my opinion, for Opec and others to enter into a production cut agreement, based primarily upon the obvious benefit to competitors whom would quickly ramp up production.
This was obvious even from those countries — Libya and Nigeria — within Opec, but also shale producers in the US, as well as a number of other countries incentivised by the decision. The top two countries outside of the US, Libya and Nigeria that will add a lot of supply to the market in 2017, are Canada and Brazil; both of which aren’t being included in a lot of supply models.
Along with that is the ongoing upward revision oil supply coming from US shale producers.
Add to this the amount of time Russia will take to fulfil its quota obligations, which may come in at the tail end of the duration of the agreement, and you have a scenario playing out that represents a much weaker impact for the production cuts. This assumes all the countries totally complied with their end of the deal; something that isn’t going to happen.
The combination of agreed upon quotas from Opec and non-Opec participants stands at 1,758,000 barrels per day. We already know Russia has committed to cut about 100,000 barrels per day in the short-term, with its total quota to reach 300,000 barrels per day in production cuts.
Since Russia is only cutting 100,000 immediately, it’s already going to fall short of the 1.8 million barrels over the six months full compliance would have brought. The market knows this in general, but it’s still reported as if Russia is going to average the 300,000 per day cut for the duration of the output deal. It’s not.
That means for now, we can cut 200,000 barrels per day off of the quota of 1,758,000 barrels per day in cuts. Cuts now will be a slimmer 1,558,000 barrels per day. Add to this Nigeria and Libya, Opec members given an exemption from the deal, and there is a lot more oil being added to the market at a quicker pace than expected. Libya, for example, already has boosted output to 700,000 barrels per day, and says by March it’ll reach 900,000 barrels per day. Who knows how high it’ll reach by June when the deal is scheduled to end or possibly be renewed in some form.
There is significant disparity concerning the expected increase in US production for 2017, with the IEA saying it will grow by about 170,000 barrels per day, and Opec increasing its US production outlook for the year by another 230,000 barrels per day. [Gary Bourgeault – Seeking Alpha]