OPEC’s Surplus to Shrink, Report Says

OPEC’s surplus production is likely to drop by as much as 1.5 million barrels a day in September, mainly because the cartel refuses to offer its crude at a discount, Petroleum Intelligence Weekly reported Monday.

Production by the Organization of Petroleum Exporting Countries surged to a 12-month high of 19.8 million barrels a day in August, even though the 13-nation group agreed to limit output to 16.6 million barrels a day for the second half of this year, the authoritative oil journal said.

“A volume slide of as much as 1.5 million barrels a day for September is being reinforced by the refusal of producers to offer price discounts or other ‘sweeteners’ to maintain previous (production),” the publication said.

Such a decline would reduce OPEC’s output to 18.3 million barrels a day in September, including liquefied petroleum gas, according to the publication’s preliminary estimates.

Most of the falloff in September production is occurring in OPEC’s Persian Gulf states, which were responsible for the entire surge in August output from July levels.

The journal said “foot-dragging by customers reluctant to lift (purchase) at official prices” is more responsible for the production downturn than OPEC’s plan to dispatch a high-level delegation to all 13 member states to urge them to curb excess output.

In June, OPEC adopted the second-half production ceiling of 16.6 million barrels a day in order to defend its $18 a barrel benchmark price.

Pressure on OPEC members to discount official prices has been defused by the two-month slippage in oil traded on the spot market back into the $18 range from as high as $22 a barrel in mid-July, the publication said.

Five OPEC oil ministers met in Vienna last week to discuss the group’s overproduction, which has undermined prices on the international market.