OPEC crude production jumped in May as members exempt from an output cut agreement ramped up production, while the cartel said headwinds from U.S. would ease the pressure in 2017 towards oil market rebalancing.
In a monthly report, the Organization of the Petroleum Exporting Countries said its output rose by 336,000 barrels per day (bpd) in May to 32.14 million bpd led by a rebound in Nigeria and Libya, which were exempted from supply cuts because unrest had curbed their output.
OPEC and non-OPEC countries, led by Russia agreed end of May to extend production cuts until the end of March 2018, as opposed to the proposed six-month extension, anticipating rise in production from U.S.
“The rebalancing of the market was underway, but at a slower pace than originally anticipated back in December 2016 due to changes in fundamentals,” OPEC said in its June report.
Rising output from Nigeria, Libya and the North Sea kept the Atlantic basin well supplied with light sweet crude, weighing on crude values. Nigerian crude production rose to 1.68 million b/d, the highest level in more than one year, the report said.
Saudi Arabia, which has voluntarily cut production below its OPEC target, told OPEC it lowered output further by about 66,000 bpd in May to 9.88 million bpd.
OPEC said crude oil production in May saw the largest declines from Angola and UAE, but the share of OPEC crude oil in total global production increased by 0.3 per cent from the month before to measure 33.6 per cent in May.
Meanwhile, U.S. oil supply has once again countered OPEC’s efforts to drawdown investories despite the very high overall conformity to the production adjustments in the first four months of 2017.
U.S. crude output continued on its 2017 upward trend, with March production increasing by 62,000 b/d to about 9.1 million b/d, according to US Energy Information administration (EIA) data.
OPEC said US oil supply growth for 2017 was revised down by 29,000 b/d with growth now at 800,000 b/d.
According to Baker Hughes’ latest report for the week to 2 June 2017, the US drilling rig count has risen by 512 units to 916 rigs from the bottom of the rig count on 27 May 2016. The US rig count was higher by 408 rigs y-o-y, an increase of 45 per cent. The number of active US drilling rigs increased for the twentieth consecutive week. Total oil rigs increased by 11 units during the week to 733 rigs, up 417 units since 27 May 2016.
The oil market was range bound and the sentiment bearish for most of May. Oil prices edged down earlier in the month as a recovery in Libyan and Nigerian output and rising US supplies raised worries about excess supply.
Oil has been weighed down by the market's impatience with the generally slow pace of the inventory drawdown globally, even after major oil producing countries decided at the end of 2016 to reduce oil production by around 1.8 million b/d in the first half of 2017.
Oil prices plunged further to five-month lows amid record trading volumes, as major oil producers ruled out deeper production adjustments.