(Courtesy Rystad Energy)
OSLO, Norway – Earlier this week, OPEC announced that it would curb production for the first time in years, aiming for a production target ranging between 32.5 and 33.0 MMb/d.
Rystad Energy VP, Oil Markets Bjørnar Tonhaugen released some commentary on the decision, noting that “the deal includes exemptions for certain countries which have experienced production disruptions, including Nigeria and Libya. The OPEC committee will likely propose country-specific targets/caps on the remaining members’ production at the Ordinary OPEC meeting on Nov. 30.
“On our numbers, OPEC’s announced production target range can be viewed more as a ‘freeze’ of production levels rather than a ‘cut.’ Based on Rystad Energy estimates, current OPEC production in August was in the middle of the stated range. We expect OPEC production to rise to around 33 MMb/d in December in our base case, up from 32.7 MMb/d in August. This incorporates a 220,000 b/d seasonal drop in KSA production from August to December due to lower domestic demand.
“Now that OPEC has announced a consensus, the implications are that global oil balances would tighten significantly if the target range between 32.5 MMb/d or 33 MM/d is adhered already from the beginning of 2017.
“It is too soon to know if and how OPEC will comply and arrange its new consensus policy within its member countries, including how much KSA will possibly restrain its production. Nevertheless, we believe OPEC is now in position to steer the pace of rebalancing of the market as we forecast that OPEC production growth is required to prevent large draws on oil stocks globally in 2017.
“We also believe the downside to oil prices in the short term has been reduced significantly after the OPEC announcement and we expect higher oil prices in 2017 than in 2016.”