MANAMA: In line with Saudi compliance to remain strong with a 2H17 average crude output of 10.15 million b/d, so OPEC supply should stay at current levels for now.
Bank of America Merrill Lynch in its latest report titled World at a Glance highlighted the bank’s forecasts in FX, rates and commodities.
Despite the deal concluded last December between OPEC and non-OPEC producers, the cartel’s crude oil supply has followed last year’s upward path. The blame for the production surge since March goes entirely to a recovery in Nigerian and Libyan output, leaving a relatively meagre 265 k b/d effective cut. Will this trend continue and will the cartel flood the market with crude as they did back in 4Q16? Not likely. Nigeria and Libya production simply cannot keep growing at the same pace. In the former, crude loadings are expected to average 1.9 million b/d, implying rather stable output levels into year-end. In Libya, we see crude production stabilizing at around 940 thousand b/d in 4Q17, says Francisco Blanch, Head of Commodities and Derivatives Research at Bank of America Merrill Lynch.
“Having said that, if Saudi was to keep crude output stable around pledged levels into year-end, crude exports would mechanically increase, given the average domestic crude oil demand down swing of 470 thousand b/d between July and January. Saudi has favoured Asian crude oil customers through pricing. Consequently, imports of Saudi Arabian crude oil into OECD Asia have broadly managed to stay elevated this year. Yet, imports of Saudi crude into China have been roughly flat YoY, while total Chinese crude imports have increased by 14% YoY this year. In other words, Saudi has struggled to maintain market share in China.
“Given the upcoming seasonal uptick on the demand front and stalling or even decreasing crude output in Asia, demand for imported crude in the region is set to increase. In China, crude runs typically increase by 750 thousand b/d between August and December. In addition, Asian crude inventories currently stand relatively low. Given current prices of similar crudes from various exporting countries, US crude seems to be the most attractive grade compared with Russia (ESPO) and Europe/West Africa (Dated Brent). The US currently has its own constraints as exports terminals are not fully operational post Harvey, but once disruptions clear out, we expect more barrels flowing East. The battle between the US, Middle East, West Africa and Russia to gain market share in Asia likely starts now.”
