Smart Charts

Oil Pricing May Hinge on OPEC’s Discipline in 2017

Oil output may outpace OPEC’s target in 2017. Chart shows production swings.



OPEC’s production policy has had a significant impact on oil supply and prices over the past two years. As the chart shows, since OPEC decided in November 2014 not to cut output, it has added roughly 2 million barrels per day (b/d) of supply, weighing on prices and delaying the market’s rebalancing.

Before OPEC announced potential cuts at a late-September 2016 meeting in Algeria, our baseline was for seasonal dips in OPEC output before a return to a new high next summer, leaving an annual average of 33.35 million b/d in 2017. Our previously forecast 100,000 b/d net inventory draw in 2017 assumed larger draws on commercial stocks and growth in strategic petroleum stocks. This would set the stage for an uptick in prices to the low to mid $50s.

However, should OPEC achieve its proposed range of 32.5 million–33 million b/d, balances would tighten and the storage surplus could dry up, pushing prices toward $60/bbl. While oil bulls see hope in this OPEC dialogue, we’re more cautious about revising our production outlook, given that output keeps climbing and that imposing and monitoring production discipline have proven challenging for OPEC historically. In addition, assuming normal overproduction of 300,000 b/d, OPEC would only match our baseline expectations for actual output.

All told, we think OPEC is more likely to disappoint than surprise to the upside.

The Author

Greg E. Sharenow

Portfolio Manager, Real Assets

View Profile

For more charts critical to understanding markets, economics and policy, visit our Smart Charts digital library.

Related Content

Filters:
Filters: Reset All

Filters

X
  • Category

    Category

    Reset

    Economic and Market Commentary
    Investment Strategies
    Viewpoints
    Close
() filters applied

Hear from Our Experts

Section: Date: Experts:
Reset All

Disclosures

All investments contain risk and may lose value. Commodities contain heightened risk, including market, political, regulatory and natural conditions, and may not be suitable for all investors. Investors should consult their investment professional prior to making an investment decision.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. ©2016, PIMCO.