Opec revised higher 2018 production growth from outside of the oil cartel for a second consecutive month as higher crude prices spur output from the US and other global producers.
In its monthly oil market report published on Monday, Opec said it forecast non-Opec supply growth of 1.4m barrels a day this year — an upward revision of 250,000 b/d from last month — led by bullish expectations of production from US shale oilfields. Even as oil market supply and demand is expected to even out this year, concerns have mounted that rising US output could offset production cuts by some of the world’s biggest producers.
Brent crude, the international oil benchmark, rose above $70 a barrel in January after global producers, including Opec and Russia, decided to renew the supply cuts deal for the whole of 2018 to reduce global stockpiles and bolster oil prices.
Prices have since fallen by 10 per cent to below $64 a barrel following recent turmoil in the global financial markets and fresh signs US production is expanding rapidly. Baker Hughes, the oilfield services company, said on Friday the number of rigs drilling for oil rose by 26 last week to 791 — the highest level since April 2015.
For 2018, Opec said, total oil supply from the US is predicted to grow by 1.3m b/d. Opec also has more bullish expectations of production from Mexico, the UK, Brazil and China. Total production from outside the cartel is expected at almost 59.3m b/d.
“The steady oil price recovery since summer 2017 and renewed interest in growth opportunities has led to oil majors catching up in terms of exploration activity this year, both in the shale industry and offshore deep water,” Opec said.
Production from Opec countries stood at 32.3m b/d in January, according to data from secondary sources such as analysts and consultants. This is the metric being used to monitor compliance with the supply curbs deal. Despite rising US oil output, Opec still expects demand for its crude to exceed current levels at 32.9m b/d this year. But the cartel is betting that more of its barrels will be required as US production growth stagnates in the latter half of 2018.
Demand for Opec crude in the fourth quarter is expected to be 700,000 b/d higher then the same period last year, when global stockpiles were shrinking rapidly. This means if the cartel’s predictions come to fruition, it could imply an even tighter oil market.
Opec is also banking on world oil demand growth to grow at a higher than anticipated 1.6m b/d, on stronger forecasts for the global economy. Total consumption is predicted to hit 98.6m b/d.