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OPEC Cuts Production in March, Raises US Output Forecast on Higher Drilling Spend

April 12, 2017 | Pipeline

OPEC said on Wednesday its output extended declines in March as members showed stricter compliance to agreed production cuts, but said U.S. producers were increasing drilling activity because of higher oil prices.

The 13-member Organization of the Petroleum Exporting Countries committed last year to cut about 1.2 million barrels of oil a day in a bid to bring a vast global oversupply of crude back in line with demand and raise petroleum prices.

Russia and 10 other non-OPEC producers also pledged to trim another 558,000 barrels a day. The agreement helped raise oil prices since it was announced on Nov. 30.

In its closely watched monthly oil report, OPEC said its production decreased by 153,000 barrels a day in March to an average of 31.93 million barrels a day. The group uses independent experts—such as analysts and shipping trackers—to assess its output.

The decrease was largely driven by lower production in the United Arab Emirates and Venezuela, respectively by 33,000 barrels a day and 26,000 barrels a day—which have both committed to reduce their output.

Three OPEC nations exempted from the cuts also suffered production losses. Libyan production fell in March by 61,000 barrels a day after its largest oil field, Sharara, was blocked by guards over wage arrears. Nigeria, where fields are producing less due to maintenance and sabotage, saw its output falling by 30,000 barrels a day while Iran, which is struggling to sell its oil due to U.S. banking sanctions, lost 29,000 barrels a day.

But Saudi Arabia, which has carried the brunt of the effort so far, increased its production by 42,000 barrels a day according to independent experts used by OPEC. However, its output remains just below its quota of about 10 million barrels a day.

But the group is still pondering how to deal with rising U.S. production, which is filling the vacuum left by its output curbs. “It can be expected that any move towards higher prices will likely lead to resurgence in US tight oil production from the major shale regions,” it said.

In its monthly report, OPEC raised its U.S. supply growth forecast by 200,000 barrels a day to 540,000 barrels a day for 2017.

“The number of drilling rigs and the reactivation of companies’ spending are the two most important factors leading to an expected output surge in the coming months,” it said. It cited a year-on-year increase in drilling rigs by 374 units to 824 rigs in the week of March 31.

OPEC agreed to meet on May 25th and look at whether it will extend the production for another six months.

But the OPEC report said Russia only carried out cuts of 130,000 barrels a day in March—compared with a pledged 300,000 barrels a day. It also reversed its forecast for annual Russian production to increase by 40,000 barrels a day from a previously expected contraction of 20,000 barrels a day in 2017, following the startup of three new projects.

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