OPEC is still not willing to reduce its production level to boost the global oil price, and that decision may soon bear fruit for the organization. OPEC expects its rivals to produce less oil in the current year due to price pressures. In effect, the 12-member group expects non-OPEC oil suppliers’ supply to drop 700,000 barrels a day in the current year. That is 40,000 barrels a day lower than its report for the previous month.
Struggling For Break-Even
OPEC said that its reduced forecast was based on the announced capex reduction by global oil firms apart from the drop in active drilling rigs in Canada and the US. Aside from that, the cartel took into consideration a heavy yearly drop from older fields. American firms are struggling for break even after the continuous drop in oil prices that are still hovering around 12-year lows.
Though OPEC talked about the possible drop in oil production from non-OPEC suppliers, it did not talk about slashing its own production. Demand has been slowing with the weak economic environment in China and the United States. However, the group wants to retain its market share despite the move hitting even their own budgets hard.
Supply/Demand Imbalance To Remain
For 2016, OPEC sees global oil demand dropping 1.25 million barrels a day. That was a modest adjustment of 10,000 barrels a day towards the lower side of its earlier outlook. That would mean an average 94.21 million barrels a day. The latest forecast come on the heels of the International Energy Agency (IEA) forecasting demand easing back significantly in the current year by 1.2 million barrels a day. That was in comparison with a 1.6 million estimate for the drop last year.
OPEC further disclosed that its own production was higher by 131,000 barrels a day. As a result, average production came in at 32.33 million barrels a day, which was higher than the official output ceiling of 30 million barrels a day. It would not be surprising if OPEC produces more than last year as non-OPEC suppliers are reducing their supply.