There was a time when a $10pb drop in the price of oil (in less than two months) would achieve far more coverage but in a time of Brexit and Trumpian politics, the ongoing price crash is competing for attention.
However, oil might be quietly preparing itself for a return to the front pages with warnings about waning demand and increased supply, particularly within the last four weeks, and an upcoming OPEC meeting in Algeria where group members once again make calls for a production freeze to save their skins.
The August edition of the Oil Market Report says, “Global oil supply rose by about 0.8 mb/d in July, as both OPEC and non-OPEC production increased. Output was 215 kb/d lower than a year earlier, as declines from non-OPEC more than offset an 840 kb/d annual gain in total OPEC liquids. Non-OPEC production is forecast to drop by 0.9 mb/d this year before rebounding by 0.3 mb/d in 2017.”
It goes on to highlight the problem of such an increase in production: “Global oil demand growth is expected to slow from 1.4 mb/d in 2016 to 1.2 mb/d in 2017, as underlying support from low oil prices wanes. The 2017 forecast – though still above-trend – is 0.1 mb/d below our previous expectations due to a dimmer macroeconomic outlook.”
Predictably oil prices sunk as traders absorbed the report, and analysts remain sceptical about the chances of prices going above $50pb for the remainder of 2016.
Not so the president of OPEC. “The current bear market is only temporary and oil price (will) increase during (the) later part of 2016,” said the Qatari minister Dr Mohammad Bin Saleh Al Sada, claiming the fact that companies have tightened their belts over the last two years and put the brakes on global oil projects will have a long-term impact.
Yet that is contrast to what certain members of OPEC are doing. In recent weeks Saudi Arabia ramped up production, beating their monthly record of 10.56m bpd from June 2015 by increasing it by 123,000 bpd – 10.67m bpd. It’s led to headlines such as this from Business Insider UK: “Here’s proof that Saudi Arabia doesn’t care about killing oil prices – only the competition”. It says, “For oil-rich nations, killing off direct competition in the long run is the only benefit to allowing prices to fall as low as they have.”
Earlier this month, for the first time since the beginning of 2014, the US imported more crude oil than it produced. Remember, back in December 2014 that OPEC meeting in Vienna when Saudi Arabia refused to cut production? This is the end goal against US producers that it wanted to achieve – producing less, buying more. From the Middle East. And its ambitions aren’t limited to the US. Aramco is to cut export prices to Asian customers – a move that is aimed at hitting Russia. Certainly Saudi Arabia has suffered as a result of low prices – but its competitors are doing worse. Few OPEC members are able to balance their national budgets.
It can’t completely ignore what they are saying however – leading to statements from the country’s Energy Minister Khalid al-Falih that they would be prepared to take “any possible action” necessary to stabilise the market. The markets like that but it’s unlikely to go as far as some – Venezuela, Ecuador and Kuwait – would hope for, basically a production freeze. As Matt Smith of ClipperData put it, “Just like previous endeavours, it seems doomed to fail, given key OPEC members (think: Saudi Arabia, Iraq, and Iran) persist in their battle for market share, ramping up exports apace.”
Al-Sada said, “OPEC continues to monitor developments closely, and is in constant deliberations with all member states on ways and means to help restore stability and order to the oil market.” The next opportunity for change will come at the OPEC sidebar in September 26th at the International Energy Forum in Algeria, but remember his assertion that things will get better later this year. It’s unlikely he’s thinking that for all his fellow producers.