The production of the Organization of Petroleum Exporting Countries (OPEC) in December fell by 751,000 barrels per day (bd) to execute a cut aimed at propping up prices, while the record increase in pumping in the US defies the strategy of the energy group.
“In December 2018, OPEC crude production decreased by 751,000 bd to an average of 31.58 million barrels per day (mbd), according to secondary sources,” the organization says in its January monthly report on the situation of the oil market.
The combined production of the fourteen members of OPEC fell to 31.58 mbd last month, a decrease of 2.2% since November and the largest monthly decline since January 2017.
OPEC and its allied producers, with Russia in the lead, agreed that month to reduce its oil production by 1.2 mbd during the first six months of 2019.
OPEC has a reduction of 800,000 bd, of which the largest part -468,000 bd- was already cut in December by Saudi Arabia, the largest producer in the group and, therefore, its natural leader.
Iran, subject to new sanctions by the US, and Libya, with a situation of instability in much of its territory, are the other two countries with significant declines in production.
This data assumes that OPEC already fulfilled most of its production reduction in December, even before the cut officially came into effect on January 1.
This is also OPEC’s largest month-on-month drop in two years, since January 2017, when the group’s combined extraction fell by almost 900,000 bd to meet another cut to boost prices, a strategy that then worked.
The value of OPEC crude from the end of November 2016 to January 2018 increased by around 50%, from 44 to 67 dollars.
On the contrary, the OPEC reference barrel traded on Wednesday at $ 59.52, a figure similar to its value before agreeing to the last OPEC cut on December 7.
However, the price of the barrel of OPEC has been a roller coaster in the last month: it fell at the end of December to 50.11 dollars, a minimum of two years, and then appreciated by 18%.
The data of fall of the production of the OPEP, that reduce its global participation in the world production of crude oil, contrasts with the increase of its competitors, which in 2018 raised their extractions in 2.61 mbd, up to 62.06 mbd.
“The share of OPEC crude in the global total decreased by 0.6% in December, to 31.6%,” say the group’s analysts, which put the world demand last month at 100 mbd.
The increase in production of OPEC competitors will remain in 2019 with an additional 2.1 mbd, up to 64.16 mbd, and with the US leading the trend.
According to official data, production in the United States increased last week to 11.9 mbd, the highest level in weekly figures since 1983.
Crude oil production in the US – already the world’s largest producer ahead of Russia and Saudi Arabia – has soared over the past 12 months by more than 2.2 mbd, more than 15%, according to OPEC data.
Some analysts believe that OPEC’s strategy of cutting production to maintain high prices indirectly supports unconventional extraction techniques, such as shale in the US, a more expensive formula that would not be profitable with low prices.
OPEC keeps its oil demand estimates for 2019 at 100.08 mbd, with a somewhat declining Chinese thirst for hydrocarbons, offset by growth in Latin America and the Middle East.
OPEC also highlighted in its analysis the negative effect of the tightening of monetary policy in the US and in other parts of the world, such as the Eurozone, in the world energy market.
According to analysts of the cartel, the increases in rates will moderate or slow down in 2019, and that could have a positive effect on the global growth prospects and a future higher oil consumption.