EIA predicts 0.8mbpd increase in crude oil production

Energy Information Administration (EIA) forecasts that Organisation of Petroleum Exporting Countries (OPEC) crude oil production would increase by 0.8 million bpd in 2015 and to remain relatively flat in 2016.

Iraq is expected to be the largest contributor to OPEC production growth in 2015. In 2016, additional OPEC crude oil supply is expected to come from Iran, which is forecast to increase production if international sanctions targeting its oil sector are suspended.

According to EIA in its Short Term Energy Outlook, while much uncertainty remains as to the timing of sanctions relief, EIA assumes implementation occurs in the second quarter of 2016, clearing the way to easing the sanctions at that time.

As a result, EIA forecasts Iranian crude oil supplies will increase by more than 0.2 million bpd on average in 2016, reaching roughly 0.5 million bpd by the end of the year.

It stated: “Saudi Arabia and other OPEC member countries are not expected to reduce production to accommodate additional Iranian volumes, although some producers will see production declines in the near term. For example, Saudi Arabia’s production is expected to respond to lower direct crude burn for electric power generation as seasonal power demand abates.

However, there is considerable uncertainty regarding Iraq’s ability to sustain its higher production and export levels, particularly in light of budgetary constraints that have prompted the Iraqi government to request international oil companies operating in the south to reduce spending plans next year”.

OPEC non-crude liquids production, which averaged 6.3 million bpd in 2014, is expected to increase by 0.2 million bpd in 2015 and by 0.3 million bpd in 2016, led by production increases in Iran, Qatar, and Kuwait.

In disclosed that unplanned crude oil supply disruptions among OPEC producers in September, averaged 2.9 million bpd, 0.1 million bpd less than the previous month because of fewer outages in Iraq and Nigeria. “Kuwait and Saudi Arabia continue to have a total of 0.5 million b/d disrupted at the Wafra and Khafji fields in the Neutral Zone that straddles the two countries”.

EIA revised higher its historical estimates of unplanned OPEC crude oil supply disruptions in 2015. “Iran’s crude oil supply disruption increased from 0.6 million b/d to 0.8 million bpd. The revision to Iran’s disruption reflects an increase to Iran’s crude oil production capacity (the level of supply that could be available within one year under a normal operating environment) based on information that Iran’s oil fields have gone through workovers in anticipation of a deal with the P5+1 on oil sanctions relief.

EIA expects OPEC surplus crude oil production capacity to average 1.5 million bpd in 2015 and 2.2 million bpd in 2016, after averaging 2.0 million bpd in 2014.

Forecast surplus capacity in 2016 was revised upward by 0.2 million bpd from last month’s STEO. EIA estimates that Iran’s crude oil production capacity is 3.6 million bpd, which is 0.8 million bpd higher than its current estimated production level.

EIA currently categorizes that 0.8 million bpd as a disruption because Iran’s production is restricted by sanctions that affect the country’s ability to sell its oil. However, if sanctions are lifted next year, any difference between its crude oil production capacity and its crude oil production level would henceforth be considered surplus capacity.

Surplus capacity is typically an indicator of market conditions, and surplus capacity below 2.5 million b/d indicates a relatively tight oil market, but the current and forecast levels of global inventory builds make the projected low surplus capacity level in 2015 less significant.