OPEC output higher in August

Oil markets have gone nearly full circle in the third quarter, moving into a bear market to the end of July and then rising sharply by mid-August and now showing just how jittery the market is. The main catalyst behind these wide moves has been market speculation over whether and when OPEC would take some form of market rationalization, most likely in the form of a production freeze. Previous attempts to broker a deal to freeze output growth in February and April came to naught and this time too we are doubtful it will be achieved nor will it provide the long-term boost to oil markets OPEC members sorely need.

Have conditions in oil markets changed enough to suggest freezing output would be beneficial? The general trend of markets rebalancing has remained intact over the course of 2016. Crude oil production in the US has fallen by over 450k b/d so far this year up to the end of August while data from Canada, China, Brazil and Mexico all point to lower output this year. There are also tentative signs that inventories in Europe and Asia are being drawn down, albeit they still aren't anywhere close to being described as tight. These improving conditions—and the fact that oil prices have held in a range between USD 45-50/b since mid-April—would suggest that the time is right for OPEC's lower cost producers to actually capture more market share, rather than less.

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