$45 A BARREL A NEW REALITY?

The OPEC report for August is out and there is not a lot of surprises. While it is not unusual to see Saudi production ramping up in the summer given higher demand for crude to be used for power generation, what is unusual is that production is now at a record high, above the peak seen last summer (OPEC August 10 report.)

OPEC crude oil production

According to secondary sources, OPEC-14 crude oil production averaged 33.11 mb/d in July, an increase of 46 tb/d over the previous month. Crude oil output increased mostly from Iraq, while production in Nigeria showed the largest drop due to internal Nigerian political situation.

In July Saudi Arabia reported 10,477tb/d similar to June and Nigeria went from 1,793 in January to 1,585 in July. So total production for OPEC in July was 33,106tb/d, a record level.

In addition, the OPEC report, shows an upward revision of the demand growth for this year to 1.22mn bpd, up 30,000 bpd from last month; it projects 90 percent of this demand growth to come from emerging markets.

This report seems to suggest that price will still be under pressure for the foreseeable future but on the other hand the US Department of Energy just issued its outlook and hints at some reduction in production coming from non OPEC country combined with a reduction in demand from China from 180,000 bbd in 2016 and 80,000 bbd in 2017 that should release the pressure so combination of these elements is suggesting a price still oscillating between $40 and $50 at least to October, in line with November 2016 contract value delivery price on Nymex at $46.

So yes for the time being it seems that $45 is a new reality…let’s see if our predictions will hold till November!