Kazakhstan retakes major position in regional oil production: OPEC

The FSU’s oil supply is estimated to have grown by 0.20 mb/d in 2017 to average 14.06 mb/d, revised up by 0.03 mb/d due to higher-than-expected output in 4Q17. Total FSU liquids production in November increased by 0.13 mb/d to average 14.10 mb/d, mainly due to Kazakh oil output returning from maintenance. Preliminary data in December indicates marginally higher production at 14.17 mb/d, once again due to higher output from the Kashagan field in Kazakhstan.

Oil production in Russia and Kazakhstan is estimated to have increased in 2017, while it is estimated to have declined in Azerbaijan and FSU others. For 2018, output is forecast to decline by 0.14 mb/d, mainly from Russia, to average 13.92 mb/d.

Kazakhstan’s liquids production increased by 0.12 mb/d m-o-m to a record high 1.81 mb/d in November, higher by 0.11 mb/d, y-o-y. While crude oil increased m-o-m by 122 tb/d to 1.54 mb/d, NGLs output remained steady at 0.27 mb/d. Higher crude output was mainly due to a record-high output at the Tengiz field as well as rising Kashagan field production after the gas re-injection operation was implemented.

In 2017, Russia’s liquids supply is estimated to have grown by 0.18 mb/d to average 1.74 mb/d while production growth in 2018 is forecast at a slower pace by 0.09 mb/d to average 1.82 mb/d.

Preliminary Russian liquids output in December averaged 11.16 mb/d, according to the Ministry of Energy, although secondary sources suggest that crude oil output was more or less steady at an average of 10.31 mb/d in the three months of 4Q17 and the NGLs output has also been steady at 0.83 mb/d in same quarter. The average liquids output of Russia in 2017 – based on eleven months of secondary sources and official data for the month of December – stood at 11.17 mb/d, showing annual estimated growth of 0.09 mb/d, y-o-y.

Crude oil output grew 55 tb/d to average 10.35 mb/d, while NGLs output averaged 0.83 mb/d, represents a growth of 34 tb/d, y-o-y. Despite Gazprom’s liquids output having risen by 0.06 mb/d to 0.42 mb/d from October 2016 until November 2017, oil production from Rosneft, Bashneft, Lukoil and Slavneft declined by 0.18 mb/d over the same period. In 2017, crude oil output ranged from 10.27 mb/d to 10.51 mb/d, while NGLs production ranged from 0.80 mb/d to 0.99 mb/d.

For 2018, Russian oil supply is expected to contract by 0.19 mb/d and average 10.98 mb/d, which is in line with the production adjustment level within the Declaration of Cooperation between OPEC and non-OPEC participants which has been extended up to the end of 2018.

In Azerbaijan, according to data provided by the Ministry of Energy, oil production in November decreased by 0.01 mb/d m-o-m, to average 0.79 mb/d, higher by 0.03 mb/d, y-o-y. Preliminary oil production in December shows another drop of 0.01 mb/d m-o-m to average 0.79 mb/d. Output from the Azerbaijan International Operating Company’s Azeri-Chirag-Guneshli (ACG) averaged 0.59 mb/d during the first nine months of the year, roughly 50 tb/d lower than the same period a year earlier, despite showing higher output in October and November following the return from maintenance. A contraction of 0.05 mb/d and 0.04 mb/d is anticipated for Azeri oil production in 2017 and 2018, to average 0.80 mb/d and 0.76 mb/d, respectively. Azerbaijan is estimated to produce an average of 0.72 mb/d of crude oil and 74 tb/d of NGLs in 2017.

China’s oil supply increased by 0.05 mb/d in November to 3.97 mb/d, including 3.82 mb/d of crude oil, according to data released by the Chinese National Bureau of Statistics. Average crude oil production for the first 11 months of 2017 declined by 0.14 mb/d compared with the same period a year earlier. The Chinese oil output estimation for 2017 remains unchanged from the last month’s assessment and is expected to decline by 0.12 mb/d to average 3.98 mb/d. The forecast for 2018 also remains unchanged to show a contraction of 0.16 mb/d and average 3.82 mb/d.

Non-OPEC preliminary oil supply in December 2017 rose by 0.34 mb/d m-o-m, mainly in Canada, Mexico, Norway, Brazil and Kazakhstan to average 58.62 mb/d, while production declined m-o-m in the US, and the UK.

The non-OPEC supply growth estimation for 2017 has been revised downward by 0.04 mb/d since last month’s assessment to 0.77 mb/d y-o-y, to average 57.79 mb/d. While the oil supply growth estimationfor the US, Canada, other OECD Europe and Russia improved, expected growth in Norway, UK, Indonesia, Argentina and Brazil has been adjusted down.

The US remains the key driver of non-OPEC supply growth, adding 0.62 mb/d to non-OPEC production in 2017, supported by other countries such as Canada with 0.32 mb/d, Brazil with 0.17 mb/d, Kazakhstan with 0.18 mb/d, Russia with 0.09 mb/d, Ghana with 0.07 mb/d and Congo with 0.04 mb/d.

In contrast, oil supply in 2017 is mainly expected to contract in Mexico by 0.22 mb/d, China by 0.12 mb/d, Azerbaijan by 0.05 mb/d, in Indonesia by 0.05 mb/d, in Oman by 0.04 mb/d, and in Egypt, Colombia, Argentina, Vietnam and Norway by 0.03 mb/d each.

World oil supply in December increased by 0.40 mb/d m-o-m, to average 97.49 mb/d, representing an increase of 0.83 mb/d y-o-y.

Preliminary non-OPEC oil supply, including OPEC NGLs, was up by 0.35 mb/d m-o-m in December to average 65.07 mb/d. For 2017, non-OPEC supply is estimated to grow by 0.77 mb/d y-o-y to average 57.79 mb/d, representing a downward revision of 0.04 mb/d from last month’s report, following a downward revision in OECD and DCs by 28 tb/d and 35 tb/d, respectively, while the oil supply forecast for the FSU was revised up by 32 tb/d. For 2018, y-o-y growth of 1.15 mb/d is forecast, following an upward revision for production in the US, Canada, Mexico and the UK and downward revisions in Norway and Argentina, and showing total supply expected at 58.94 mb/d.

OPEC NGLs and non-conventional liquids’ production averaged 6.45 mb/d in December. OPEC NGLs are estimated to grow by 0.17 mb/d to average 6.31 mb/d in 2017, and for 2018, production is forecast to grow by 0.18 mb/d, to average 6.49 mb/d.

In December 2017, OPEC crude oil production increased by 42 tb/d, according to s secondary sources, to average 32.42 mb/d.

Oil futures improved markedly in 2017 to exceed $50/b, spurred by strong demand and declining global inventories. International benchmark Brent crude futures ended the year with a rise of almost 22%, toaverage about $55/b, supported by a year of ongoing supply adjustments by OPEC and non-OPEC producing countries as well as strong demand, particularly from China. NYMEX WTI ended 2017 gaining near 18%, despite a significant increase in oil production in the US. These gains indicate that the global glut that has dogged the market since 2014 is shrinking. Earlier this year, oil prices slumped on concerns that rising crude production from Nigeria, Libya and elsewhere would undermine output adjustments under the DoC. But prices have rallied nearly 50% since the middle of the year on robust demand and strong conformity with the production reduction.

In December, oil futures improved further to levels not seen since late 2014, with ICE Brent near $67/b and NYMEX WTI around $60/b. Both futures contracts continue to be supported by growing indications that the oil market is heading smoothly toward rebalancing, lower crude oil stocks, healthy demand and geopolitical tensions. The positive outcome of the month-end decision between OPEC and non-OPEC producing countries to extend the Declaration to end of 2018 as well as supply turbulences in the North Sea buoyed the sustained gains in oil futures throughout the month.

Earlier in the month, crude futures prices were stable supported by ongoing OPEC and non-OPEC production adjustments but went under pressure on profit-taking as the market eyed signs of rising US production, although prices remained close to recent two-year highs, following continued efforts by OPEC and participating non-OPEC producers to balance the market.

Subsequently, US crude futures prices slid sharply as a sizeable drop in crude oil stocks was outweighed by a sharp rise in US product inventories and US crude production hit another record high. However, Brent crude futures prices rose following data showing higher Chinese crude imports, although gains were tempered by an increase in the US oil rig count. The increase came despite the US dollar strengthening following a better-than-expected US jobs report for November.

Crude futures prices jumped further after the North Sea Forties pipeline was closed to repair a crack, with Brent reaching a two-and-a-half-year high. Major oil price benchmarks were up again, impacted by the ongoing North Sea pipeline outage as well as the fall in US crude inventories. Potentially rising oil supply dampened the upside as the IEA’s monthly report forecast that US oil production would grow more than previously expected.

Ahead of the Christmas holiday weekend, oil prices rose in light trading, steadying near their highest levels since 2015 on pledges from Saudi Arabia and Russia to extend the DoC. Brent oil prices edged up enough to close at the highest since the summer of 2015. Oil prices surged further to two-and-a-half-year highs and US crude touched $60/b, boosted by news of an outage of a Libyan crude pipeline. Support also came after data showed strong demand for crude imports in China and on increased US refining activity that drew more crude from inventories. Trading was typically thin at year-end, with many traders on vacation. The EIA said crude stocks fell 4.6 mb in the last week of the year. Inventories – excluding the nation's strategic reserve – have declined more than 11% in the last year. US refining runs increased, pushing capacity use to 95.1%, the highest for the month of December dating back to 1998. Refiners have profited in recent months as the spread widened between US crude and Brent futures prices.

On the final trading day of the year, US oil prices closed above $60/b, the first time since mid-2015, as the commodity ended 2017 with a 17% gain spurred by strong demand and declining global inventories. WTI prices were also supported by data from the US EIA showing domestic oil production declined to 9.75 mb/d from 9.79 mb/d the previous reading.

ICE Brent averaged December $1.23, or 2.0% higher, at $64.09/b, while NYMEX WTI increased $1.28, or 2.3% higher, to average $57.95/b. For the year, ICE Brent was $9.61, or 21.3%, higher at $54.74/b, while NYMEX WTI rose by $7.39, or 17.0%, to $50.85/b.

In Europe, in December the light sweet North Sea Brent premium to Urals medium sour crude rebounded from a record low not seen since 2015, but remained generally at a very low level. The spread increased by 29¢, to the advantage of Brent, to average 39¢/b, from the previous month’s low of almost flat.

For the year, Urals differentials to Dated Brent have been stronger on continuing limited supply of the grade as well as lower supplies from OPEC producers to Europe. Urals differentials continued to improve against Dated Brent due to weaker Russian exports and healthy demand from European refiners. Light sweet grades were supported by the temporary outage of Forties crude production in the North Sea from mid-month onward.

Natural gas import prices in Europe increased, with average prices up by 9.0% to $6.56/mmbtu.

Natural gas inventories for EU Member States decreased to 64.9% full at the end of December from close to 80.5% in the previous month, according to Gas Infrastructure Europe.

Excerpts from the OPEC market report January 2018.