Mercado Released [1 June 2015]: OPEC CRUDE OIL PRODUCTION

OPEC will meet on June 05, 2015 in Vienna to decide on the group’s production target for the next six months amid a glut that sent prices down about 50% last year. We are expecting OPEC to maintain their production target of 30 million barrels a day. In the last meeting held in November 2014, Saudi Arabia led the group to maintain its output target to defend its market share amid increases of us shale oil supplies. In the last two months, Saudi Arabia pumped 10.25 million barrels a day and this was due to higher Asian demand as China overtook the US and became the largest crude oil importer. We are expecting that the Asian market share competition will continue in the short to medium term. Another support to the decision is the OPEC board demand forecast of the group’s crude oil supply of 30.5 million in the 2nd six months of 2015, which is more than 2 million higher than the 1st six months of 2015. However the forecast is lower by 3.2% than the current production level. Since the decrease in crude oil prices oil majors have cut their capital expenditures by 10 – 15% and minors by 30 – 40%. IEA (International
Energy Agency) is estimating a decrease by US$100 billion this year in oil production investments. The markets is also expecting the US self-imposed crude oil ban that has been in place since 1975, to be lifted by 2017. The US has switched from the world largest buyer of foreign oil to the largest contributor to growth in the global crude oil supply in the last four years. However, the US is the largest exporter of petroleum products and last it exported 500 000 barrels a day of petroleum. The US goal of energy independence is under threat as the collapse in crude prices has led to a 59.9% drop in oil rigs since the peak of 1 609 recorded in the week of October 10, 2014. The current crude oil prices are close to the marginal cost of production.

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Week 23 2015