Oil output surges to a record 34.02 million bpd in October 2016
International crude oil prices witnessed the biggest weekly loss in almost 10 months on Friday, November 4th, 2016, on fading hopes that the Organization of the Petroleum Exporting Countries (OPEC) would be able to strike a deal to cut production and ease the prevailing global glut, as reported by Bloomberg. Futures dropped 1.3% in New York, bringing the six-session decline to 11% on November 3rd, 2016, as reported by Bloomberg. Oil prices closed at the lowest level on November 3rd, 2016, since OPEC reached a preliminary accord on September 29th, 2016, in Algiers for the cuts. Oil prices also extended their losses on reports that Saudi Arabia threatened to raise output if other members did not agree to cuts. Losses eased after OPEC Secretary-General Mohammed Barkindo said the kingdom did not make the threat.
On September 29th, 2016, OPEC members agreed to reduce oil output to 32.5 million barrels per day (bpd) from the current levels of around 33.24 million bpd in an attempt to keep crude prices above $50 per barrel. However, oil traders are skeptical about OPEC efforts to curb production, which stood at a record 34.02 million bpd in October 2016, according to Bloomberg estimates. Even if the crude output could be reduced, traders are doubtful that the jump in crude stockpiles by 14.4 million barrels to 482.6 million barrels of as reported by the U.S. Energy Information Administration (EIA) for the week ended October 28th, 2016, can be minimized. U.S. crude oil inventories are at the upper limit of the average range for this time of year, according to the EIA.
Meanwhile, oil has retreated below $45 a barrel this week following OPEC’s failure on October 28th, 2016, to agree on output quotas for member countries, which must happen before any deal can be finalized by the end of November 2016. West Texas Intermediate for December delivery dropped to settle below $45 a barrel on the New York Mercantile Exchange, the lowest close since September 20th, 2016. Total volume traded was 28% above the 100-day average. Oil prices have slipped 9.5% for the week ended November 4th, 2016, the most since the period ended January 15th, 2016.
International crude oil prices dipped over doubts that efforts to curb crude production could materially alter the global oil balance and reduce oil inventories that have been ailing the oil industry over the past two years. OPEC also plans to ask other major producers, including Russia, to join its efforts in cutting output and hopes to provide other major details at its next meeting in Vienna on November 30th, 2016.
Iraq increases output
Iraq’s Kurds said that their oil production in September 2016 was 290,000 bpd lower than the federal government’s figures. Iraq increased output by 50,000 bpd to a record 4.59 million bpd and asked to be excluded from mandated cuts because of its war with Islamic militants. Meanwhile, Libya, Nigeria and Iran, which already have been exempted from the OPEC deal, pumped an additional 400,000 bpd in October 2016, according to Bloomberg.
Rise in U.S. rig count
Meanwhile, Baker Hughes data showed that U.S. drillers added 9 oil rigs, bringing the total number of oil rigs operating in U.S. fields to 450 as of November 4th, 2016, compared to 572 in the year-ago period. This marks the highest level since February 2016, according to Baker Hughes.
Along with the rising U.S. rig count, oil producers in the North Sea are poised to ship the most crude in more than four years in December 2016, according to Bloomberg. In a fresh development, Colonial Pipeline Co. said that it is on target to restart of the pipeline’s 1.3 million-barrel-a-day main gasoline line from November 6th, 2016. The 5,500-mile Colonial Pipeline is the largest U.S. refined products pipeline system and can carry more than 3 million barrels of gasoline, diesel and jet fuel between the Gulf Coast and the New York Harbor area. All these factors would worsen the market glut for the remainder of 2016 and early 2017, pulling down crude prices to new lows.