The International Energy Agency yesterday said crude oil production by Opec jumped last month as member countries continued to fight for market share.
Opec production recorded its highest monthly increase in nearly four years last month, climbing by about 900,000 barrels per day to just over 31 million bpd, according to the Paris-based IEA, the rich consuming countries’ main energy watchdog.
Overall, oil production is up a “whopping” 3.5 million bpd compared with March of last year, with the gains split between Opec and other producers, the IEA’s monthly report said.
However, the report also said there was “a notable acceleration” in oil demand in the first quarter of the year amid “a steadily improving global economic backdrop”. It increased its forecast for demand for this year by 90,000 bpd to 93.6 million bpd.
But the demand for Opec oil is expected to average 29.5 million bpd this year, which means production is still running at 1.5 million bpd above expected demand.
“Opec’s core Gulf producers – led by Saudi Arabia – appear to be sticking to their defence of market share ahead of a scheduled June 5 Opec meeting”, the agency’s monthly oil market report observed. The IEA noted recent comments by Ali Al Naimi in which the Saudi oil minister said that the kingdom would keep pumping at rates of about 10 million bpd.
Indeed, Mr Al Naimi said in those comments last week that Saudi Arabia pumped at 10.3 million bpd last month, though the IEA’s estimate put the kingdom’s March output at 10.1 million bpd, still the highest rate since September 2013.
The high rate of Saudi production “will probably add more fuel to the fire, with many in the market viewing it as the kingdom deliberately raising output to push prices lower and get back at Iran and US shale producers,” said Amrita Sen, an analyst at Energy Aspects.
“Yet the true reason for the pick-up is based on fundamentals,” she added.
Cheap Saudi crude led to increased demand from Asia, especially China, where much of it has been going into storage. Ms Sen also said Saudi is ramping up output to meet demand from two new domestic refineries, and “the kingdom is likely to want to keep enough crude at hand for domestic burn as Ramadan falls in June this year, a peak summer month”.
The IEA also estimated that production in war-ravaged Iraq and Libya also increased in March, by 350,000 bpd to 3.67 million bpd and by 190,000 bpd to 480,000 bpd, respectively.
The UAE’s production was estimated by IEA to be unchanged at 2.84 million bpd, although the country itself has officially reported to be producing at rates closer to 3 million bpd for several months.
The IEA estimated that production by Iran last month fell by 50,000 bpd to 2.79 million bpd, but it said that the possibility that Iran will finalise a deal on its nuclear programme with sanctions lifted this year adds to the uncertainties about the oil market outlook.
“Months into the process of market rebalancing from the oil price collapse, one might be hoping for more clarity on supply and demand impacts. Yet in some ways, the outlook is only getting murkier,” the IEA report said.
“While it may take some time for Iran to expand its production capacity, ramping up flows from already developed fields could be faster. Even quicker would be a hike in exports from oil in floating storage, of which there is reportedly enough to sustain shipments of some 180,000 bpd for six months,” the IEA report added.
The uncertainties are just as great on the demand side, with surprising pockets of demand emerging in the early part of this year – from European refiners, for example – but mixed signals about how demand is likely to unfold this year, it said.
amacauley@thenational.ae
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