The Malaysian Reserve

When OPEC met to extend cuts, output rose most in 6 months

An oil pumping jack, also known as a 'nodding donkey,' operates near an oil drilling derrick, right, in an oilfield operated by Bashneft PAO in the village of Otrada, 150kms from Ufa, Russia, on Saturday, March 5, 2016. Bashneft is an upstream and down stream oil & gas provider which explores, produces and refines its own oil and gas which it extracts from brownfield reserves in the Russian Federation. Photographer: Andrey Rudakov/Bloomberg

LONDONAs OPEC and its partners last month agreed on prolonging production cuts, the group’s output was climbing the most since November as members exempt from the deal restored lost supply.

Production jumped by 336,100 barrels a day in May as Libya and Nigeria revived output halted by attacks and political crises, a report from OPEC showed yesterday. The two nations were excluded from curbs that were extended on May 25 because of earlier disruptions to their oil industries.

Still, the organisation predicts that surplus oil inventories will continue to decline in the second-half (2H) of the year as their cuts take effect and demand picks up. OPEC reduced forecasts for supplies from partners such as Russia, Kazakhstan and Sudan as they implement their pledges to restrain output.

“The re-balancing of the market is underway,” according to the report by OPEC’s Vienna-based secretariat. “The decline seen in the over hang” in developed-nation stockpiles “is expected to continue in the 2H, supported by production adjustments by OPEC and participating non-OPEC producers”.

While OPEC’s latest forecasts indicate it expects its 10 partners will continue to cooperate, they don’t suggest those countries will fully deliver on their commitments.

OPEC lowered forecasts for Russian production in the 2H of the year by 200,000 barrels a day, or about two-thirds of the amount the country’s government has promised to cut. The overall outlook for non-OPEC supply in the 2H was reduced by 200,000 barrels a day. The producers assisting OPEC had pledged a total reduction of about 558,000 barrels a day.

Still, the report suggested that the producers’ efforts are having some success.

The surplus in oil inventories in developed nations relative to their five-year average — OPEC’s main measure of the overhang — is down to 251 million barrels from 339 million at the end of last year. — Bloomberg