Libya and Iran lead OPEC oil production increases; US to hit new high

Libya and Iran lead OPEC oil production increases; US to hit new high

Middle East Economic Survey (MEES), the authoritative oil-industry newsletter, has published a short survey of OPEC oil output trends, and output trends of other major exporters.

The 14 OPEC members produced an average of 32.49 million barrels per day (mn b/d) during 2017, the second highest on record. This was a little less than the 32.62 mn b/d produced in 2016, which was the highest on record.

Saudi Arabia is by far the biggest OPEC producer, with average wellhead production of 9.97 mn b/d in 2017. Iraq and Iran were the second and third biggest producers, with 4.43 mn b/d and 3.79mn b/d. The UAE produced 2.9 mn b/d.

The slight fall in OPEC’s 2017 production occurred despite significant increases by Iran and Libya. But these increases were offset by voluntary reductions by Saudi Arabia, and involuntary reductions by Venezuela.

MEES notes that:

Iranian production grew by 360,000 b/d in 2017 (and it grew by 580,000 b/din 2016) as a result of the easing of international sanctions in January 2016. However, MEES says that the pace of change slowed towards the end of 2016 and that, “The low-hanging fruit is gone and further sizeable gains look to be dependent on securing foreign investment and expertise.” MEES notes that the launch of a new Iranian oil contract model – designed to encourage foreign investment – has not gone as planned and that the only finalised contract has been the deal signed with Total and China’s CNPC to produce condensate (not crude oil) from the South Pars Field.

Libyan production increased by 440,000 b/d to an average of 820,000 b/d in 2017. It averaged 980,000 b/d in December. At OPEC’s November meeting, Libya was reported to have agreed not to produce above its 2017 levels during 2018 (MEES takes this to mean that during 2018 Libya will not exceed its highest 2017 production rate, which was 1.02 mn b/d). MEES notes that the production gains are indicative of the unstable security situation and that they, “frequently prove fleeting and cannot be relied on as permanent.”

Venezuela’s average production of 1.95mn b/d in 2017 was 320,000 b/d lower than in 2016, and production in December 2017 was down to 1.78 mn b/d. MEES comments that, “Further falls look inevitable,” citing the on-going political and economic crisis, including the dismissal in November of Oil Minister Eulogio del Pino, an experienced industry figure who had previously run the state-owned oil company PdVSA, and his replacement with Major General Manuel Quevedo, who MEES says has no industry experience.

Looking beyond OPEC, MEES notes that:

Russian production is running around 10.93 mn b/d in line with its commitment to cut 300,000 from its end-2016 figures.

The world's biggest oil producer is the United States (US), and it is set to become even bigger as a result of increasing production from shale oil. Specifically:

US crude oil production will rise by nearly 1 mn b/d to average 10.27 mn b/d in 2018, according to the US government’s Energy Information Administration (EIA). It is expected to reach 10.6 mn b/d in 2019, the IEA says, reaching 11 mn b/d towards the end of that year. These predictions are based on a price of $55/B for West Texas Intermediate (WTI) in 2018 and $57/B in 2019.

Oil prices have been firming since August 2017, with WTI consistently exceeding $55/B since November, and rising above $60/B this year.

The highest ever US crude oil production was 10.052 mn b/d in November 1970. This record is expected to be broken within the next few weeks, MEES says.

The United States produces significant amounts of natural gas liquids (NGLs) and when these are added to the crude oil figures, total US output stood at 13 mn b/d in 2017, making the US a bigger oil producer than Saudi Arabia or Russia. Combined crude and NGL production is due to rise to 14.4mn b/d in 2018 and 15.4mn b/d in 2019, according to the IEA.

Increased US production during 2017 has been driven by shale oil gains. Shale oil production is provisionally estimated at 6.31 mn b/d in December 2017, compared to 5.17 mn b/d a year before.

The result of this increased oil production, MEES says, is that in 2017 the US output exceeded 75% of oil demand for the first time in 45 years (and possibly longer). This coverage ratio is expected to rise to 80.4% in 2019 as increased production rises faster than increased demand.

However, the picture is more complicated than these figures imply. Much of US oil production comprises light sweet oil (particularly shale oil), whereas US refineries are designed for heavier crude. As a result, the US has to import larger quantities than the net production/demand calculation would imply. In 2017, the US imported 7.90 mn b/d.

 Middle East Economic Survey is a subscription-based newsletter based in Cyprus that has been reporting on oil and economic developments in the Middle East since 1957. www.mees.com