Declines in oil output are rapidly and continuously happening that the events in the Americas alone—wildfires in Canada, Venezuela’s instability and delaying U.S. frackers, seem to be the global oversupply solution.
The 70 percent oil price drop between 2014 and 2016 rooted from oversupply; the production exceeded demand by as much as 2 million barrels per day. But the problem is vanishing quickly due to the production cuts in the United States, Canada, Latin America, and increasingly in Asia as well.
"In the last two years, outages have not been the focus because of the imbalance in the market, but that changes now that the market is tightening," said Richard Gorry, director of JBC Energy Asia.
Government, industry and consultancy data revealed that producers in the Americas had cut over 1.5 million bpd in the last quarter, and output in Asia and Australia plunged some 250,000 bpd that helped erode large portions of the world’s glut.
The wildfire at the core of Canadas oil sands region, has forced more than 690,000 bpd out of production, with more possible commotions, based on Reuters estimates.
Meanwhile, according to the Energy Information Administration, U.S. output is anticipated to plummet another 800,000 bpd in the next five months. It is already down by 410,000 bpd this year and 800,000 bpd since mid-2015.
Latin Americas crude oil production, while already suffering from under-investment, edged 4.6 percent lower in the first quarter to 9.13 million bpd, a loss of 441,000 bpd from the same period in the previous year, based on data from individual countries and OPEC.
Venezuela had the greatest decline with 188,000 bpd in the first quarter as President Nicolas Maduros government is struggling in a deep economic crisis.
The Asia Pacific region’s output is also declining.
Standard Chartered bank claimed that Asia’s biggest producer and consumer of oil, China, is predicted to see a 6 percent fall in crude production in the current year, due to maturing fields and poor economics.
Simmons & Co. analyst Guy Baber said that the unexpected oil supply disruptions have been a factor that contributed to a tighter oil market than was otherwise expected. Baber also warned that, “If the disruptions last, there will be limited spare capacity to meet demand.”
Members of the Organization of the Petroleum Exporting Countries, headed by Saudi Arabia, have rebuffed to control production in order to maintain market share and squeeze out higher-cost rivals. As senior oil analyst Neil Beveridge of Sanford C. Bernstein said, “The Saudis have achieved what they want in that the market is re-balancing through price.”
He also mentioned that over the year, Saudi has raised production, placing downward pressure on price to restore discipline among the producers.
OPEC producers like Saudi Arabia and Qatar have been able to increase supplies and prices to the world’s top oil consuming region, Asia, due to the non-OPEC production cut. The recent wildfires in Canada are also contributing to speeding up the re-balance, added Beveridge.
Though, with the growing Middle Eastern production, near-record Russian production and overflowing storage tanks, the global surplus might remain for some time.