Reasons which may push major oil producers to increase production

A report by the Norwegian energy research company Ristad revealed five main reasons for the increase in crude oil production at the current stage through joint collective efforts by all producers.

First, the demand for crude oil in the second half of the year will witness a remarkable growth compared to the first half, and growth is estimated at 1.1 million barrels per day due to the rise in seasonal demand in the third quarter.

Second, the market will lose a lot of its oil supply because of the contraction of production of Venezuela and Iran during the second half of the year, directly affected by economic sanctions on the two countries. It should be pointed out that the Iranian production is likely to lose 700 thousand barrels per day by the end of the year, while Venezuelan production might lose 850 thousand barrels during the same period.

The third reason is limited growth in American production during that period due to transportation problems and bottlenecks in the field “Bramian” main in the production of US rock oil. The report pointed out that increases in rock production will not exceed 100 to 150 thousand bpd per month. The report also mentioned an estimation of the need to add two million barrels per day to the global supply, which will not be able to US production and will return the ball back to OPEC as the dominant and leader of the global crude oil market.

The fourth reason consists in unexpected risks and emergency events leading to the interruption of supplies. The most prominent examples of this are Libyan and Nigerian production, pointing to a deficit of 720 thousand and 400 thousand barrels per day in the production of the two countries, respectively.

Fifth: The production cuts implemented by the OPEC countries and its non-OPEC allies have already achieved their full objectives, especially with regard to the treatment of surplus stocks, and the voluntary and forced cuts deepened production cuts by 800 thousand barrels of excess.

The report pointed out that OPEC’s decision to increase one million barrels per day is a key step to avoid a severe shortage of oil supply in the market, and to avoid a possible sharp rise in prices in the second half of this year.

Saudi Arabia and Russia have led the rest of the producers to accept the importance of increased production, to offset the potential severe shortfall caused by a possible collapse in Iran’s oil exports by the end of this year, according to the Ristad Energy report. Oil market specialists and analysts predicted that crude oil prices will continue to fluctuate this week after the Brent global crude lost 3% at the end of last week, while losses were lower in US WTI crude, which lost 0.5%.

Experts believe that the fall in prices came after Saudi and Russian-led increases in production along with trade fears between the United States and China, which deepened concerns over economic growth and then demand levels for crude oil.


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