OPEC on Wednesdayraised its forecast for non-member oil supply this year toalmost double the growth predicted four months ago as higherprices spur U.S. shale drilling, offsetting OPEC-led output cutsand a collapse in Venezuelan production.
In a monthly report, the Organization of the PetroleumExporting Countries said non-OPEC producers would boost supplyby 1.66 million barrels per day in 2018. That was the fourthstraight rise from 870,000 bpd forecast in November. "For 2018, higher growth is expected on the back of theprojected increase in U.S. shale production following a betterprice environment not only for shale producers, but also forother countries such as Canada, the UK, Brazil and China," OPECsaid of the outlook for non-OPEC supply. This would lead to "a higher quarterly distributionthroughout the year with a record-high level projected for thefourth quarter", OPEC said. OPEC, Russia and several other non-OPEC producers, but notthe United States, began to cut supply in January 2017 in aneffort to erase a global glut of crude that had built up since2014. They have extended the pact until the end of 2018. The deal has helped boost oil prices , which topped$71 a barrel this year for the first time since 2014 and werenear $65 on Wednesday. But it has also encouraged a flood ofshale, fuelling a debate about the curbs' effectiveness. Oil pared much of an earlier gain on Wednesday after therelease of the OPEC report. The Iranian oil minister said OPEC could agree at its nextmeeting in June to start easing the curbs in 2019, the WallStreet Journal reported. He also said OPEC should aim for oilaround $60 to contain shale growth. Top exporter Saudi Arabia, however, said in February it waspremature to discuss an exit strategy. Faster-than-expected growth in demand due to a robust worldeconomy has added a tailwind to the OPEC supply effort. Although OPEC in the report slightly raised its estimate ofgrowth in world demand to 1.6 million bpd, it now projects theexpansion in supply outside the group will exceed gains indemand. This brings OPEC's view closer to that of the International Energy Agency, which expects a less rosy 2018 supply/demandbalance. VENEZUELAN PLUNGE While rivals are pumping more, OPEC's production in Februaryfell, according to the report. Total output dropped by 77,000 bpd to 32.186 million bpd,led by declines in Iraq, the United Arab Emirates and Venezuela,according to figures OPEC collects from secondary sources. Adherence by the 12 OPEC members with output targets rose to147 percent, according to a Reuters calculation based on theOPEC figures, higher than 137 percent in January based on lastmonth's report. The figures that OPEC members reported themselves showedsome deeper declines in production. Venezuela, whose output is dropping amid an economic crisis,told OPEC its production sank by about 183,000 bpd to 1.586million bpd in February. The number is believed to be the lowestin decades. With outside producers expected to increase supply by morethan demand, OPEC cut its estimate of the global requirement forits crude in 2018 by 250,000 bpd to 32.61 million bpd. Should OPEC keep pumping at February's level and otherthings remain equal, the market could move into a deficit ofabout 420,000 bpd, suggesting inventories will be drawn down.This is less than the deficit of about 560,000 bpd implied lastmonth. The supply cut's original aim was to shrink oil inventoriesin developed economies to their five-year average. The latestfigures gave a mixed picture on stock movements. Stocks rose by 13.7 million barrels in January to 2.865billion barrels, although this was only 50 million above thefive-year average, the closest yet OPEC has come to the originaltarget. OPEC is now talking of looking at other metrics to assessthe market's rate of return to balance. (Editing by Dale Hudson and David Evans)