Tanker Insights - OPEC, the Market Share Protectors - Teekay

June 9, 2016

OPEC production to remain high, supporting crude tanker demand

OPEC members met in Vienna on June 2 to discuss production strategies, and what, if anything, they can do to reverse the slump in oil prices. While OPEC was unable to come to an agreement on a production freeze or production quota for member nations, they did agree that market pressures were having the desired effect of pushing out non-OPEC supply such that oil supply and oil demand will rebalance. The decision to let the market decide has resulted in a As the chart below illustrates, Middle East OPEC producers have steadily increased production since the start of January, 2015. This increase has largely been driven by Iraq and Saudi Arabia, with recent additions from Iran as sanctions were lifted at the beginning of 2016. However, non-Middle East OPEC producers, including Libya, Nigeria, and Venezuela, have struggled with geopolitical instabilities such that their production as of April 2016 has declined by ~0.3 mb/d from the beginning of 2016. This figure will be closer to 0.9 mb/d for May as recent militant attacks in Nigeria have brought ~0.6 mb/d offline.

OPEC Supply

OPEC vs Non-OPEC Supply

As the largest producer in OPEC, and the member most expected to cut production, Saudi Arabia seems to have learned a lesson from OPEC cuts during the oil price slump in the 1980s that resulted in a loss of market share. By allowing market conditions to determine the price of oil this time, OPEC plans to ensure that buyers of their oil remain in place while their higher-cost competitors are forced to shut production. As the chart above illustrates, non-OPEC production has declined from a peak of 48.1 mb/d in December 2014 to 46.9 mb/d in April 2016. OPEC production, on the other hand, has increased from a low of 30.2 mb/d in March 2014 to an all time high of 32.8 mb/d in April 2016. OPEC’s lack of production quota, and unwillingness to freeze production at current levels, is ultimately positive for crude tanker demand, especially for the larger vessels, as increases in OPEC production, particularly from the Middle East, represent long-haul movements to both Asia and the Atlantic markets.

Tanker Insights – OPEC, the Market Share Protectors

OPEC production to remain high, supporting crude tanker demand