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As oil prices are on the rise so is OPEC output

Published Wednesday, July 13th, 2016

Yesterday we were provided with the first glimpse of where OPEC sees the 2017 oil supply/demand balance and in a nutshell they are quite bullish. They see a more than 1 mbpd increase on the call for their oil. It is forecast to be 31.85 mbpd for this year and 32.97 mbpd for 2017. The 2016 figure is some 370,000 bpd higher than the estimate published a month ago but this big increase is down to Gabon which joined the organisation with effect from July 1. The country’s output stands at just above 200,000 bpd and has been included in OPEC production data. Historical values along with forecasts for demand for OPEC crude and non-OPEC supply have been adjusted to reflect this change.

The healthy 2017 outlook is based on a global GDP growth of 3.1%, a touch higher than this year’s level. Next year’s supply/demand balance follows the pattern of that of 2016. The traditionally weak first half of the year will be succeeded by a tighter second half. With all the historic data in for the first half of 2016, OPEC concludes that global stocks grew by 1.83 mbpd. A demand of 30.77 mbpd for OPEC crude was met with a production level of 32.60 mbpd. The same figure for 1H 2017 is 32.01 mbpd which will result in a far smaller build in global oil inventories. At the current OPEC production rate of 32.86 mbpd the stock increase will decline to 800,000 bpd. The present quarter might actually see global stocks falling by 320,000 bpd as the call stands at 33.17 mbpd. This potential stock draw will then turn back into a 160,000 bpd surplus in the last quarter of the year giving us an average daily stock build of around 880,000 bpd for the whole of 2016. The second half of 2017 will be much more bullish than the current half. Demand for OPEC crude is estimated to be at 33.93 mbpd which, at current production, will lead to a 1.07 mbpd fall in oil inventories. If re-balancing means a decline in global oil stocks than it will not start in earnest until the second half of 2017.

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Posted by Tamas Varga

Tamas Varga has been in the oil industry since 1992 and with PVM for 18 years. During his time in the industry he has gathered a range of experience in the oil markets. At PVM Tamas is in charge of data collection and analysis.