OPEC sees oil glut continuing to ease in 2016-17

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OPEC said Tuesday it expected the global supply glut to ease further this year and next thanks to reductions in oil output from producers outside the cartel, particularly the United States.

If accurate, this will be a vindication of its Saudi-led strategy since 2014 of squeezing non-OPEC suppliers by keeping production at high levels despite low prices.

In its July monthly report, the Organisation of the Petroleum Exporting Countries predicted a drop in non-OPEC output to 56.0 million barrels per day (bpd) in 2016 from 57.0 million bpd in 2015.

In 2017, a further drop to 55.9 million bpd is expected, OPEC said, due in part to further falls in production by US shale oil producers, who need a higher oil price than the current $45-50 to survive.

The report gave no prediction for OPEC production but said that in June its total output rose from May by 264,000 bpd to 33.0 million bpd, according to secondary sources. In 2015 its production was 32.1 million bpd. Demand for crude produced by OPEC’s 14 members should average 33.0 million bpd in 2017, up 1.1 million bpd from 2016, OPEC predicted.

“Thus, market conditions will help remove overall excess oil stocks in 2017,” it said.

Overall global demand for oil is expected to grow by 1.2 million bpd in 2016 to 94.2 million bpd, before growing at a similar rate to average around 95.3 million bpd in 2017, OPEC said.

Traditionally OPEC has cut production to boost falling prices but in the current cycle – which saw oil prices tumble from over $100 in 2014 to almost $25 in January – OPEC has squeezed competitors by keeping the taps open.

It took some time – straining even Saudi Arabia’s finances, to say nothing of on-the-brink OPEC member Venezuela – but prices earlier this year recovered to around $50, although they have eased in recent weeks.

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