#ChoiceBroking #OPEC Update

1. OPEC Update
1st December 2016
The Organization of the Petroleum Exporting Countries (OPEC) on Wednesday i.e. 30th Nov’16 committed
to their first oil production limits in eight years. OPEC has agreed to cut production by around 1.2 million
barrels per day or 4.5 percent of the existing production to 32.5 million barrels per day.
Saudi Arabia, which raised oil production to a record high in current year, agreed to reduce output by
486,000 barrels a day to 10.058 million a day. Iraq, which is second-largest producer in cartel, agreed to
cut by 210,000 barrels a day from its October level. The country had previously pushed for special
consideration, citing the urgency of its offensive against Islamic State. The United Arab Emirates and
Kuwait will reduce output by 139,000 barrels a day and 131,000 a day, respectively. Non-member Russia,
also pumping at a post-Soviet record high levels, agreed that it will cut by as much as 300,000 barrels a
day “conditional on its technical abilities,” a statement from Energy Minister Alexander Novak in Moscow.
The cartel also offered accommodations to Iran, Libya and Nigeria which would mean that total OPEC
production is likely to increase next year, even as other members cut output in the first part of 2017. Libya
and Nigeria were granted exemptions because they had experienced significant supply outages on
account of internal conflicts. Iran agreed to freeze production near current levels rather than cut as it
rebuilds its market share following the lifting of sanctions earlier this year.
Looking at broader picture apart from OPEC, other countries aren't helping out those who hope for higher
prices, the International Energy Agency (IEA) said in its latest oil market report. Demand for oil around the
world is expected to increase by 1.2 million barrels a day in 2017, a rate of growth that would match the
current year. The IEA also projected that Russia, which is the world's largest oil producer, will increase its
crude output by 230,000 barrels a day in current year. The agency says Russia could boost production by
another 200,000 barrels a day by 2017. The IEA stated that it expects Brazil, Canada and Kazakhstan to
pump more in 2017. That would push total non-OPEC output growth to 500,000 barrels a day next year,
compared with a projected decline of 900,000 barrels a day in 2016. This means that 2017 could be
another year of relentless global supply growth similar to that seen in 2016.
Indonesia, the cartel's only Asian member, said that it would suspend its membership as it wasn't willing
to cut its production as agreed by OPEC. The meeting requested for Indonesia to cut around 5 percent of
its current production or around 37,000 barrels per day. As a net oil importing country, a cut to production
capacity will not be beneficial for Indonesia. Indonesia has a patchy OPEC membership history. The nation
first joined in 1962, it left in 2009 as dwindling production meant that Southeast Asia's most populous
country had become a net importer of crude oil, which is against OPEC's statute for full membership and
later it re-joined OPEC in early 2016.
Outlook: The last two years have been painful for OPEC and its members. According to U.S. Energy
Information Administration, group will earn $341 billion from oil exports in current year which will be
down from $753 billion in 2014 before prices started correcting and record high of $920 billion in 2012.
The cartel members will meet again on 25th May’17, at that point it intends to extend cuts by another six
months. So till then, we expect crude prices to trade with positive bias in the range of $44/bbl to $55/bbl.
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OPEC Update
1st December 2016
Anish Vyas
Digitally signed by Anish Vyas
DN: cn=Anish Vyas, o=Choice Merchandise
Broking Pvt. Ltd, ou=Sr. Research Associate,
email=anish.vyas@choiceindia.com, c=IN
Date: 2016.12.01 11:28:43 +05'30'