Production surge to control prices:
Last month, US oil futures had climbed to a four-year high near $77 a barrel on growing concerns there could be a shortage as the Iran sanctions bite deeper. Since then, the US has made every effort to maintain price control through a massive boost in domestic production and by urging allies in OPEC to ensure the maximum possible production by the group. While anxious to ensure low prices for the US consumer in general, the Trump administration has been immediately concerned about the adverse impact of high prices on voters in the mid-term polls on 6 November, a day after the Iran sanctions come into force.
As of now, the US game-plan seems to be working:on 1 November, oil prices fell to their lowest level in more than two months in response to increasing US crude stockpiles. US oil inventories rose by a more-than-expected 3.2 million barrels on 31 October. This was the sixth straight weekly climb that has seen domestic supplies swell by a total of 31.9 million barrels over that period.
West Texas Intermediate crude, the U.S. benchmark contract, was down 48 cents, or roughly 0.7%, to $64.83 a barrel. Brent crude oil futures slumped $1.13, or about 1.5%, to $74.34 per barrel, after hitting a session low of $74.08, a level last seen on August 22.
The surge in US production has been matched by record levels of OPEC production, climbing to the highest level since 2016. In October, OPEC members boosted production by 430,000 barrels/ day to 33.33 million barrels per day (mbd), the highest since November 2016. Saudi Arabia increased production by 150,000 barrels/day to 10.68 mbd, slightly below its production of 10.72 mbd in November 2016.
An even larger gain was seen last month in Libya, which has overcome political feuds and terrorist attacks to reach the highest output level since 2013. The North African nation increased production by 170,000 barrels a day to 1.22 million a day.
Russia, which is not an OPEC member but cooperated with the group in last year’s supply curbs, is also increasing production. It hiked production of crude and condensates to a record of almost 11.41 million barrels a day in October.
Iran, which has seen many buyers flee as U.S. sanctions neared, is producing the least crude since 2016. It slipped by a further 10,000 barrels a day to 3.42 million in October, though estimates for September were revised higher. Even before the sanctions become effective, 1.1 million barrels a day have already been cut from Iran’s shipments, though some of the output is going into storage. Still, about 1.76 million barrels a day were exported in October.
While OPEC and its partners are boosting supply now, the outlook for next year is growing increasingly uncertain: at end-October, an OPEC committee signalled that producers might need to restrain output in 2019 as faltering economic growth, especially in emerging markets, weakens demand for fuels.
November 3, 2018