Under-pressure OPEC expects ‘rebalancing process’ to begin in 2016
VIENNA - OPEC said Monday that it expects a "rebalancing process" to begin in 2016 as the sharp fall in the oil price causes production from non-cartel competitors such as the US to fall after seven years of "phenomenal" growth.
If the prediction is accurate, it would make a victory of sorts for OPEC's strategy of keep the oil flowing despite crude sliding to below $30 a barrel -- from over $100 in 2014 -- to defend its market share.
"The analysis indicates that 2016 will be a supply-driven market. It will also be the year when the rebalancing process starts," the Organization of the Petroleum Exporting Countries said in its January monthly report.
"After seven straight years of phenomenal non-OPEC supply growth, often greater than two million barrels per day, 2016 is set to see output decline as the effects of deep capex (capital expenditure) cuts start to feed through," it said.
It hiked by 270,000 barrels per day to 660,000 barrels per day its forecast for the drop in 2016 non-OPEC production to 56.21 million barrels (mbpd) per day.
"Non-OPEC marginal barrel production in the next six months will be sensitive to sustained low oil prices, whereby its breakeven point would not be able to tolerate the price conditions at that time," it said.
OPEC's forecast for global oil demand growth this year was tweaked slightly upwards to 1.26 million barrels per day to reach 94.17 mbpd.
For December, OPEC said that global oil supply fell 0.34 mbpd to average 95.20 mbpd. Non-OPEC supply declined by 0.13 mbpd and OPEC supply by a faster 0.21 mbpd, cutting OPEC's share of global production to 33.8 percent from 33.9 percent the previous month.
Oil prices, which plunged below $28 a barrel early Monday, have fallen sharply in recent months due to the slowdown in the Chinese economy and the prospect of Iran returning to the market after last July's nuclear deal.
Despite a minor recovery in London trade, oil prices were trading below $30 per barrel Monday after the US and EU lifted sanctions on Iran after last year's nuclear deal with big powers came into force.
The country is now free to start shipping crude, adding to a supply glut, which -- along with weak demand and a slowing global economy -- has slashed prices by about three quarters since mid-2014.
In the past OPEC has responded to price falls by curbing production. But this time it has opted to keep the taps open.
Driven by cartel kingpin Saudi Arabia, this is aimed at maintaining market share and squeezing out US producers of shale oil, whose output has boomed in recent years but which need a higher oil price to make money.