OPEC's strategy of defending its share of the global oil market has just begun and the group may increase production, the International Energy Agency said, Bloomberg reported.
Gulf-based members of the Organization of Petroleum Exporting Countries are boosting supplies as they escalate a strategy to preserve sales volumes, the IEA said in its monthly market report. The 12-nation group agreed in November to maintain its production ceiling, insisting non-member suppliers help tackle a global glut that they caused.
"The move by the group's core Gulf members last November not to cut production in defense of prices was only the first step in a plan that includes actually ramping up output and aggressively investing in future production capacity -- even as their non-OPEC counterparts keep tightening their belt," the Paris-based adviser to 29 industrialized nations said. It's "premature to suggest that OPEC has won the battle for market share. The battle, rather, has just started."
While slowing growth in U.S. crude inventories signals that the shale industry has "blinked" in the face of OPEC's move, the agency increased its overall 2015 estimate for non-OPEC supplies and said that short-term market fundamentals remain "relatively loose."
Oil prices have recovered almost 50 percent in London from a six-year low reached in January, as the surge in U.S. shale supplies that triggered a global glut loses momentum. The price rebound has made OPEC members, due to meet next month, more united in the strategy to maintain rather than cut their production, Kuwaiti Oil Minister Ali Al-Omair said on Tuesday. Brent futures traded near $67 a barrel on Wednesday.
The IEA raised its estimate for non-OPEC supply growth in 2015 by 200,000 barrels a day because of "surprisingly strong" output during the first quarter from Russia, China, Colombia, Vietnam and Malaysia. Non-OPEC producers, which account for about 60 percent of global supplies, will expand output this year by 830,000 a barrels a day to 57.8 million a day.
While U.S. crude inventories have declined as production "buckled," the accumulation of crude stockpiles is being converted into a build-up in supplies of refined fuels, the IEA said. U.S. product stocks increased in March, a period when they normally decline, the agency said.
Supply from OPEC's 12 members increased by 160,000 barrels a day in April to 31.21 million a day, the highest since September 2012, because of higher output from Iran and Iraq, according to the report. Supplies from Saudi Arabia, Kuwait and the United Arab Emirates remain near the highest level in three decades. Group output will probably stay close to 31 million barrels a day this month, the IEA projected.
Iran raised production by 90,000 barrels a day to 2.88 million in April, the highest since international sanctions on its oil exports took effect in July 2012, according to the agency. Iraq boosted output by 100,000 barrels a day to 3.8 million a day, extending a three-decade high.
Saudi Arabia, the world's biggest oil exporter and OPEC's most influential member, trimmed production slightly in April to 10.1 million barrels a day, according to the report. Sustaining output above 10 million barrels a day for a second month demonstrates the kingdom "is intent on maintaining its policy to preserve its market share," the IEA said.
Total OPEC output is about 1.2 million barrels a day higher than the average of roughly 30 million a day that will be required in the second half, the report indicates. The group will meet to review its production target -- currently at 30 million barrels a day -- on June 5 in Vienna.