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Higher oil prices may lead OPEC members to exceed their quotas

2 May 2018 11:10 (UTC+04:00)
Higher oil prices may lead OPEC members to exceed their quotas

Trend:

Higher prices may tempt some OPEC members to exceed their quotas over the next few months, the UK-based consulting company Capital Economics said in its analysis obtained by Trend.

We still think that the cartel is underestimating non-OPEC supply growth. Indeed, the recent rise in prices, which OPEC is partly responsible for by fuelling speculation that it will continue restraining output through 2019, will ensure that more drilling rigs come online in the US, leading to greater output," said the report. "In addition, higher prices may tempt some OPEC members to exceed their quotas over the next few months. We expect the market to be roughly in balance this year, as slowing economic growth in China weighs on oil demand and US production exceeds OPEC’s expectation."

OPEC production fell by 0.2 million barrels per day in March.

"Output in Angola plunged, but this may be reversed as new fields came on stream at the end of March. Meanwhile, output in Venezuela fell again as the ongoing economic crisis in the country hampered activity in the oil industry. Venezuela is now producing about 0.5m bpd less than in March 2017. OPEC revised up its forecast of growth in global demand in 2018 by about 30,000 bpd to 1.65m bpd," said the report.

However, the group also amended its estimate of non-OPEC supply growth in 2018, raising it by another 80,000 bpd, to 1.71m bpd.

"What’s more, OPEC estimated that the market was in a surplus of 0.6m bpd in Q1 2018, slightly higher than the surplus in Q1 last year. Assuming OPEC’s output is flat, the cartel is expecting a deficit of 0.4m bpd in 2018 as it expects demand to rise in the second half," said the Capital Economics.

In December 2016, at a meeting of oil producers in Vienna, 11 non-OPEC member countries, including Azerbaijan, agreed to cut oil production by a total of 558,000 barrels a day. The agreement was concluded for the first half of 2017 and was extended until the end of the first quarter of 2018 at a meeting on May 25, 2017.

At the last OPEC meeting in Vienna, the agreement was again extended until the end of 2018. Azerbaijan supported the decision.

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