Opec gets its ducks in line for Vienna

“While the increase in non-Opec supply last year was more than twice that of global oil demand growth, this relationship is expected to flip this year before widening further in 2016 so that world oil demand growth exceeds the change in non-Opec supply,” said the Opec Monthly Oil Market Report (MOMR) yesterday.

The MOMR hiked the call on Opec crude for next year by a chunky 500,000 b/d and slashed 290,000 b/d from forecast non-Opec crude production, a switch from expansion to contraction. Next year’s demand growth is seen at a robust 1.25mn b/d, giving total demand of 94.11mn b/d.

Stage left, Opec secretary-general Abdullah al-Badri expresses confidence that the market will be more balanced in 2016. Stage right, Saudi ministerial adviser Ibrahim al-Muhanna worries about market instability “in the absence of a market leader or anchor”, but his speech in Kuwait noted the drop in investment in unconventional crude and suggested belief that the market share strategy is working.

If Opec members wanted a morale booster, BP’s chief economist Spencer Dale provided one in a speech today where he said that — in the face of long-term game changers such as the advent of shale oil and electric cars — “the economically sensible response… is for Opec to maintain its market share and let other higher-cost producers, less able to compete, bear the brunt of the demand contraction”. And “Opec’s ability to stabilise the market in response to short-lived, temporary shocks remains largely unaffected. The greater responsiveness of US shale means that cyclical movements in shale production should also help to stabilise the market. But Opec’s role remains dominant.”

So — apart from some squawking from Venezuela — the ducks are in line for Vienna’s December meeting. Keep on with the market share strategy. Just as well as, in truth, there’s no choice. Even if the exact timing and the volumes are open to scepticism, Iran will come back and its peers will not make room for it.

Today’s IEA Oil Market Report, at first glance, is a cautionary note to Opec members thinking the corner has been turned. Taking a lead from the IMF’s downward revision of global economic growth, the OECD’s energy watchdog has pared its demand growth forecast for 2016 and removed 200,000 b/d from its call on Opec for next year as a result. But the overall effect is to leave its 2016 numbers closer to Opec’s — demand growth of 1.2mn b/d and a call on Opec of 31.1mn b/d.

But where the Opec report’s editorial accentuates the positive (for its members), the IEA’s is more caveated, reminding readers that “geopolitical tension… is back in the frame” and that “these moving pieces are creating uncertainty”. It cautions that “considering Iran, the market may be off balance for a while longer”.

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