Oil markets rebalancing seen in 2016, says OPEC

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A sharp fall in prices will see a higher-than-expected decline in oil supplies from non-member countries this year, increasing the need for more crude from the producer group, OPEC said in a report.

“The analysis indicates that 2016 will be a supply-driven market. It will also be the year when the rebalancing process starts,” it said in its monthly report.

After seven straight years of phenomenal non-OPEC supply growth, often greater than 2 mb/d, 2016 is set to see output decline as the effects of deep capex cuts start to feed through, the report said.

It said that the lingering effects of a few years of solid additions – sanctioned during four years of $100 oil – will help to reduce the decline, as more than 2 mb/d of new projects are still planned for 2016. But the decline in maintenance capex should also start to show through higher decline rates and possibly greater supply outages.

Places like Canada, the North Sea, Latin America and parts of Asia are particularly vulnerable, with all projects in Canada now below cash cost.

“In 2016, non-OPEC oil supply is now projected to contract by 0.66 mb/d, following a downward adjustment of 0.27 mb/d. The revision has been due to stronger declines expected in the US and Canada caused by the lower price environment,” the report said.

The largest decline in non-OPEC output is expected to come from the US at 380,000 b/d, it said, adding that the US oil production is anticipated to average 13.50 mb/d in 2016.

On a regional basis, OECD Americas is expected to have the highest production decline, dropping by 450,000 b/d, followed by FSU, OECD Europe, Middle East, Africa and OECD Asia Pacific, while production in Latin America and Other Asia is seen increasing.

Growth is expected to come mainly from Brazil, Canada, Malaysia, Australia, Asia others, Africa other and China, while oil supply from Mexico, UK, Indonesia, Egypt and FSU is seen declining. The risk and uncertainties associated with the supply forecast due to the oil price collapse remain high on both sides, especially for the US, Canada, Russia, Brazil and the UK.

In 2016, oil demand growth is expected to be around 1.26 mb/d, marginally higher than in the previous report, to average 94.17 mb/d.

The report said demand for OPEC crude in 2015 is estimated at 29.9 mb/d, an increase of 200,00 b/d over the 2014 level. In 2016, demand for OPEC crude is forecast at 31.6 mb/d, some 1.7 mb/d higher than the previous year.

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