• Global oil supply rose by 0.6 mb/d in September, with non-OPEC up nearly 0.5 mb/d on higher Russian and Kazakh flows and OPEC at an all-time high.World oil output of 97.2 mb/d was up 0.2 mb/d on a year ago due to strong OPEC growth. Non-OPEC supply is forecast to drop by 0.9 mb/d in 2016 before rebounding by 0.4 mb/d in 2017.
  • OPEC crude output rose by 160 kb/d to a record 33.64 mb/d in September as Iraq pumped at the highest ever and Libya reopened ports.Supply from the group stood 0.9 mb/d above 2015 due to robust Middle East output. OPEC has agreed to cut supply to between 32.5 mb/d and 33 mb/d, with details to be set by end-November.
  • Demand is forecast to expand by 1.2 mb/d this year, with a similar gain expected in 2017.Growth continues to slow, dropping from a five-year high in 3Q15 to a four-year low in 3Q16 due to vanishing OECD growth and a marked deceleration in China. The potential for colder weather should see growth rebound somewhat in 4Q16.
  • OECD commercial inventories fell for the first time since March, by 10 mb to 3 092 mb in August due to a larger than seasonal decline in crude stockpiles. Preliminary data for September show crude stocks falling in both Japan and the US.
  • Weighed down by autumn maintenance, global refinery throughput in 4Q16 is expected to decline seasonally by 1.1 mb/d, up just 70 kb/d year on-year. Global throughput in 2016 is expected to grow y-o-y by just 220 kb/d, the lowest annual growth rate in more than a decade, excluding the last economic recession.
  • Benchmark crude prices rose in September as market rebalancing continued and participants anticipated an OPEC supply cut.At the time of writing, front month ICE Brent was trading at $53.05/bbl with front month NYMEX WTI lower at $51.15/bbl.


The waiting game is over. OPEC has effectively abandoned its free market policy set in train nearly two years ago. Global oil inventories are far too high - in the view of some producers – and they aren’t being worked off nearly fast enough. To speed up the process, OPEC agreed on 28 September to cut production. The price of oil has risen by 15% to more than $53/bbl since the deal, the first to cut supply since 2008.

Now the real work starts. Apart from setting a supply target of between 32.5 mb/d and 33 mb/d, other critical details – like individual country allocations, production baseline and implementation date – need to be finalised when OPEC meets on 30 November. Iran, Libya and Nigeria – all aiming to raise output - are said to be exempt from cuts. A significant rebound in supply from Libya and Nigeria and further growth from Iran would suggest that bigger cuts would have to be made by others, such as Saudi Arabia, to meet the new output target. Our estimate for September shows crude supply from the group’s 14 members climbing to 33.6 mb/d – an all-time high. The extent of any cooperation from non-OPEC producers such as Russia is still to be determined.

To be sure, the rapid rise of US light tight oil (LTO) and OPEC’s free-wheeling strategy triggered dramatic changes in the world of oil. The price of crude fell from triple digit highs to below $50/bbl. Lower prices at the pump initially fuelled strong gains in demand, but growth has since slowed markedly after subsidy cuts in emerging markets, economic headwinds in some countries and demand saturation in the developed world. On the supply front, relentless growth from non-OPEC – particularly US LTO – has swung into contraction, as forecast in our previous reports. At the same time, production from OPEC – driven mainly by low-cost Middle East supply – has risen to all-time highs. The net result is a massive oil inventory overhang that is keeping the market under pressure.

The current price of oil has caused discomfort for all producers – even those with hefty financial reserves, such as Saudi Arabia. For high-cost non-OPEC producers the pain has been especially acute. The impact of steep investment cuts made in 2015 is being felt now: nearly 0.9 mb/d has been lost since a year ago. The lower price environment has also forced companies big and small to cut costs and do more with less. As a result, non-OPEC supply is expected to return to growth next year.

Even now, producers such as Russia are showing impressive resilience. So are Middle East OPEC countries whose record-smashing performance has raised the group’s oil output by 1.1 mb/d from a year ago. The converse is true for demand, with growth slowing from a five-year high in the third quarter of 2015 to a four-year low in the third quarter of this year.

Even with tentative signs that bulging inventories are starting to decline, our supply-demand outlook suggests that the market – if left to its own devices – may remain in oversupply through the first half of next year. If OPEC sticks to its new target, the market’s rebalancing could come faster.