The sharp increase in crude oil output from Libya and Nigeria led to a decline in OPEC’s compliance rate to just 78 percent in the month of June 2017, down from 95 percent in the previous month.
Saudi Arabia also increased its production by120,000 barrels per day (bpd) in the same period.
According to IEA in its latest Oil Market Report, higher production from OPEC is likely going to delay the rebalancing of the oil market.
Oil prices posted steady and solid gains last week, clawing back some of the most recent losses and moving back up into the upper-$40s per barrel.
Analysts say the concerns about oversupply have not gone away, so there are questions about how much more room oil has to run from the producers.
Meanwhile, Saudi Arabia is hoping to cut oil exports to the US in a bid to drain American oil inventories, a strategy that could see the US imports of Saudi crude dropping to just 800,000bpd in August.
Even though the news about higher OPEC production made more headlines in the past weeks, but oil traders are said to be at ease with the situation because of the of IEA reports, which note oil demand is growing faster than previously expected. The agency said that demand would expand by 1.4 million barrel per day (mb/d) this year, or about 0.1mb/d faster than it previously thought.
Barclays Bank in a research note last week says there is no way the price of oil would get to $50 per barrel any time soon, as it slashed its three-month oil price forecast from $57 to $49. This is latest in a series of price downgrades at major investment banks.
“The recent weakness reflects the market’s need to price in a lower [U.S.] shale break-even and absorb the unexpected return of around 300-400 [kbpd] of Libyan and Nigerian oil,” Barclays says in the report.
It states that with inventories still quite high, government stockpiles available, and cuts providing OPEC with additional spare capacity, there are plenty of plugs to fill any hole,” it added.
Also S&P Global, it said that if the price of oil stays at below $50 per barrels through 2018, it would put oil majors’ credit ratings at risk.
“If oil prices stay below $50 per barrel through 2018, it would threaten the credit ratings of even the largest oil companies, S&P Global said last week. If oil prices persistently trend below our price assumptions ($50/bbl on average until the end of 2018), downgrade pressure for many ratings would increase without material and sufficient further cost and capex efficiencies, disposals, or other countermeasures against weak credit metrics for a sustained period,” S&P states in a report.