Oil: Non-OPEC Production Declines

Oil markets will continue to be buffeted by Russian overtures to OPEC suggesting a desire to orchestrate a production cut. Uncertainty over the Fed’s next move will keep markets on edge. Markets are rebalancing, nonetheless, and prices are bottoming.

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Even though Russian oil production remains at post-Soviet highs, it has been declining slightly month-on-month since mid-2015, and started posting yoy declines in the fourth quarter.

In addition to Russia, other non-OPEC producers will see meaningful production losses this year. Noteworthy among this group are North Sea producers. Oil output in the North Sea took a turn lower in 2015Q4. We expect low prices will force production lower this year and next, in line with the EIA’s forecast of 2.75 mm b/d this year, or about 250 kb/d yoy.

Overall our commodity strategists expect non-OPEC oil (crude and condensates) production to fall yoy by close to 1.7 mm b/d in 2016. This is higher than the EIA’s estimated 640 kb/d production decline for non-OPEC. In our projection, we see sharply lower U.S. production – please see the next Insight, (Part II) Oil: Sharply Lower U.S. Output Expected.

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