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January 3, 2016 | 16:15 | Dubai
Oil prices will remain under pressure this year from a bearish fundamentals position thanks to elevated production (including from OPEC itself), bursting stocks and a return to average demand growth, says a report by Emirates NBD Global Markets & Treasury. Total crude oil production from OPEC ended 2015 at 32.1m b/d, little changed in December from a month earlier. On average, output from the 12 members hit 31.7m b/d in 2015, its highest average level since 2008. Average production expanded 1.4m b/d from OPEC members with Iraq (770k b/d), Saudi Arabia (577k b/d) and Angola (154k b/d) adding the most new output.
Among the GCC producers, output expanded by 637k b/d as small declines from Kuwait and Qatar did little to cap expansions in Saudi Arabia and the UAE, the report said.
There are several dynamics that are expected to shape OPEC’s experience in 2016, some sparked internally and some caused by external stimulus, it added:
(1) Return of Iran: nuclear-related sanctions on Iran are due to be lifted this year allowing the nation to return as a sizeable oil exporter. Officials there have pledged to recapture market share and the addition of around 500k b/d of capacity coming back on to markets this year is expected.
(2) Cohesion among members: OPEC is in a highly fractious state, divided between those who favour a price-motivated cut and members seeking a longer-term market share strategy. These disputes are expected to remain open over 2016, casting doubts on the effectiveness of OPEC to coordinate policy.
(3) Coping with non-OPEC supply: the market share strategy adopted at the end of 2014 is working, albeit slowly, in curbing supply growth outside the bloc. This year, OPEC will continue to have a fight on its hands in protecting market share as producers such as Russia and Oman maintain output at high levels and the US enters the crude oil export market for the first time since the 1970s, Emirates NBD Global Markets & Treasury report said.