Thursday morning Reuters reported that OPEC's draft report ahead of the June 5 meeting showed the cartel to believe that non-OPEC producers would continue to ramp production until 2017. If demand conditions don't change that could mean that either the cartel will have to take action to cut supply, or producers as a whole will have to endure lower prices for an extended period of time.
Citigroup analysts, in a note, said they saw no change in OPEC's 30 million barrel a day quote, when the cartel meets June 5. OPEC refrained from cutting production at its November meeting, and already weakening prices fell further.
"Saudi Arabia—the only vote that really counts—seems determined to stick with its new 'market share' driven policy if the record oil rig count in the Kingdom is any indication. The Saudi delegation will be scrutinized for any shift in policy given the overhaul of oil leadership. Ali Naimi remains Oil Minister but the market is keen to understand the implications of Deputy Crown Prince Mohammed bin Salman's newly acquired oversight of the oil sector," Citigroup energy analyst Seth Kleinman wrote.
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Kleinman said, for now, OPEC hawks have been "cowed."
"Iran, typically the loudest hawk, is hoping to see its production rise materially in the coming year with sanctions removed, and if it hopes that OPEC will make room for this increase, and hence avoid an intra-OPEC price war, arguing for cuts now would be impolitic at best," he wrote.
Lipow, meanwhile, said the jump in U.S. production likely had little to do with a recent rise in oil prices. Analysts have expected U.S. producers to find more interest in drilling as oil prices rise close to and above $60 per barrel.
Lipow speculated that the increase last week could be the result of the DOE adjusting its weekly data ahead of its release of March monthly data Friday. He said this could be because March production is going to be much higher than the market thinks. Lipow expects it to be around 9.4 million barrels a day but the market may be expecting 9.2 million.
At 9.4 million barrels a day on monthly basis, March production would also be highest since 1972.