IEA Warns Glut Will Swamp Market If No OPEC Cut

OPEC members have been busy looking for ways to get all members of the organization to agree to a production cut, but outside the spotlight, as it turns out, they have been pumping ever-growing amounts of crude.

According to the IEA’s latest Oil Market Report released on Thursday, OPEC produced 230,000 barrels per day more in October, hitting yet another record with a total daily production of 33.83 million barrels. This, according to the authority, will make the task of cutting production more challenging than previously thought, Oil Price reported.

The proposed band for production that was hoped would help the market return to balance is 32.5-33 million bpd.

The challenge becomes nearly insurmountable in light of the OPEC members that caused the rise.

These were Libya, Nigeria, and Iraq, where production hit an all-time high. The first two of these countries have been exempted from the production cut because of loss of market share unrelated to oil prices trends. Iraq is adamant that it should be exempted, too.

The situation is heating up, with Saudi Arabia last week flexing its muscles after playing the good and reasonable guy for a couple of months.

According to OPEC sources cited by ZeroHedge, the desert kingdom threatened to turn up the taps and add to the glut. It seems Saudi Arabia is losing patience with its co-members, which are refusing to follow its lead at their own expense.

“The Saudis have threatened to raise their production to 11 million barrels per day and even 12 million bpd, bringing oil prices down, and to withdraw from the meeting,” the source told Reuters.

That is certainly food for thought and cause for pessimism, especially if we factor in Saudi Arabia’s ongoing fight against its smaller neighbor Yemen.

In this context, it is difficult to continue believing a cut will be agreed to. What is even worse, at least from the energy industry’s perspective, is that even if an agreement is forged through clenched teeth, it is unlikely to have any major effect on prices.

In the same report, the International Energy Agency said supply from non-OPEC producers, which so far this year have reduced output by an average 900,000 barrels a day, will rise in 2017.

The rise will not be tiny, either; IEA puts it at 500,000 bpd. This is a lot more than last month’s forecast non-OPEC supply increase of 110,000 bpd for next year.