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OPEC pumping at full bore

Published Wednesday, July 1st, 2015

At their June 5 conference OPEC “resolved to maintain the 30 mbpd production ceiling and urged Member Countries to adhere to it”. Members were not listening, or those that matter were not if the latest June production surveys from Reuters and Bloomberg are to be believed. It is one thing to suggest that OPEC are operating with no production constraints at all and quite another to have it confirmed month after month. Reuters put June OPEC production at 31.60 mbpd, up from 31.30 mbpd in May. The Bloomberg survey has come in at an enormous 32.13 mbpd, an increase of 744,000 bpd on their May estimate.

In both cases the increases come from a combination of Saudi Arabia and Iraq. The two countries are chasing every dollar of revenue they can before Iran comes on the scene. If continued, the global surplus for the second half of the year will be between 1.6 and 2.1 mbpd. Current OPEC production levels are 1.5 to 2 mbpd higher than they were in November last year when OPEC switched to a market share from a price support strategy.

This all sounds very bearish and we see it that way but bulls are dangerous animals who do not give up easily. They will no doubt point out that with Saudi Arabia pumping at a little below 10.5 mbpd, in response they claim to demand, that leaves only 1.5 mbpd of spare capacity. The counter is that you cannot ignore the enormous global stock build that is taking place as we discuss below. A substantial share of spare capacity is moving from below to above ground.

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Posted by David Hufton