DALLAS: OPEC wants to expand its tent. United Arab Emirates energy minister Suhail al-Mazroui said on Thursday that the group of oil-exporting countries was trying to extend its alliance on production restraint with Russia and other countries longer term. Fair enough – except it’s happening just as U.S. drillers are set to pump more oil than both Saudi Arabia and Russia this year.

The Organization of the Petroleum Exporting Countries has some grounds for comfort. Its pullback – along with non-OPEC countries including Russia – has to some extent been working. On Monday the group said that inventories in those economies declined by 22.9 million barrels in December to 2.9 billion barrels, 109 million above the five-year average. Compliance with cuts is strong, and output is falling. Prices are still hovering above $60 a barrel, despite recent declines in part prompted by hedge funds partially unwinding an unusually big bet on increases.

OPEC’s cuts have mostly helped U.S. producers though, which are pumping more now and are expected to capture the market that OPEC is forgoing over the next year. According to data the International Energy Agency published this week, U.S. oil production increased by a “colossal” 846,000 barrels per day in the three months to November last year. It should soon overtake Saudi Arabia, and could usurp Russia’s production by the end of 2018, the IEA says.

Wood Mackenzie predicts that U.S. producers’ growth alone will best global demand growth. Including supply growth elsewhere, mostly Brazil and Canada, the analyst forecasts excess oil supply of about 800,000 barrels per day, even with strong production restraint by OPEC and others through 2018. U.S. producers aren’t going to run out of oil any time soon either – Wood Mackenzie says that producers in the West Texas region of the Permian Basin can continue to grow production by at least another 1 million barrels per day for the next 15 years.

The market can still fluctuate in the near term, and no one knows whether peak oil demand is years or decades away. As OPEC cuts inventories, blips to U.S. production can cause more dramatic swings to price if others don’t fill in the gap. That might give it false hope the strategy is working as stockpiles drain. But ultimately the world will produce more oil this year than it will use, even with OPEC’s broader reach. That threatens the oil exporters’ plans – regardless of tent size.

CONTEXT NEWS

- Oil producers including Saudi Arabia and Russia aim to write up a long-term alliance by the end of 2018, United Arab Emirates energy minister Suhail al-Mazroui told the local National newspaper on Feb. 15, Reuters reported.

- The alliance would encourage 24 OPEC member and non-member countries to extend production restraints while also building oil capacity buffers to help with changes to currency, demand, and supply issues.

- WTI was trading at $61.25 a barrel at 1045 EST on Feb. 16. Brent crude was at $64.55.

(Editing by George Hay and Liam Proud)

© Reuters News 2018