THE debate is on! Who has won this round of battle? Opinions and counter opinions continue to make rounds. Efficient producers have finally begun elbowing out the non-efficient ones, some are asserting. Does it indicate the success of the Saudi-led OPEC strategy? Non-OPEC supply is slowing down and demand is picking up, OPEC is now asserting. Output from non-member states would grow by only about 160,000 bpd next year - 110,000 bpd less than projected earlier - OPEC is now saying. Non-OPEC production would hence stay around 58 million bpd in 2016 - significantly lower than earlier estimates. And this OPEC projection is in line with the forecast made by the OECD energy watchdog IEA too. "The Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, inefficient' production," the IEA asserts. Consequently it has cut forecast for non-OPEC supply by 0.3 million bpd next year to 57.7 million bpd. IEA is now emphasizing non-OPEC production is heading for its worst decline since 1992. Arctic and ultra deepwater exploration remain in trouble, while mature prospects such as the UK sector of the North Sea continue to see job and capex cuts. "Cheap oil prices ushered in by Saudi Arabia-led OPEC policy of protecting market share will end up squeezing high-cost producers like US shale drillers, leading next year to the biggest drop in output in nearly a quarter century," the IEA report added. The casualties of the "success" of the OPEC strategy are evident, OPEC, the EIA and the IEA - all seem to concur. "US oil production has shown signs of slowing," OPEC reported. "This could contribute to a reduction in the imbalance of oil market fundamentals, however, it remains to be seen to what extent this can be achieved in the months to come." The US Energy Information Administration (EIA) too is saying that production from several important shale-oil fields is likely to fall by 80,000 bpd by next month. Seasonal factors offshore and weak economics onshore are expected to lead to a decline in US crude oil production. In its short-term market report, EIA is asserting; the total US crude oil production will decline 4.3 percent from expected full-year 2015 levels to 8.8 million barrels per day by 2016. The Paris-based IEA is no different. "After expanding by a record 1.7 million bpd in 2014, the latest price rout could stop US growth in its tracks," an IEA report said. "US oil production is likely to bear the brunt of an oil price decline that has already wiped half the value off" the main international oil contract. Consequent to all these changes, global oil output may drop by half a million bpd next year - the biggest decline in 24 years - with US shale producers accounting for four-fifths of that drop, the report underlines. Crude oil output from the Eagle Ford shale in Texas, one of the hottest spots during the US drilling boom, has already been dropping for seven straight months, down 17 percent over that time, according to ClipperData's analysis. Fitch Ratings reported the near 55 percent drop in US Lower 48 rig counts during the first half of 2015 would contribute to a second half 2015 production decline of roughly 7 percent in tight oil and shale gas regions at June operating and activity levels. This exit production rate would be around 3 percent lower than year-end 2014 levels, it emphasized. In the meantime, the US inventories have also fallen by 2.1 million barrels in the past week, suggesting a drop in US production at a time of painfully low prices. On the other hand demand is also growing. Lower prices have helped strengthen the global crude demand. OPEC projects the world oil demand growth to be around 1.46 million bpd for 2015, an upward revision of about 84,000 bpd, projecting the global demand to rise from 93 million bpd to 94 million bpd in 2016. As per the IEA, oil demand growth is set to hit a five-year high this year, touching 1.7 million bpd and 1.4 million bpd next year. The IEA also increased its forecasts for overall demand this year and next by 0.2 million bpd to 94.4 million bpd and 95.8 million bpd, respectively. The IEA does not make supply forecasts for OPEC, but said it expects market demand on OPEC supplies is projected to rise to 31.3 million bpd in 2016, an increase of 1.6 million bpd, as low prices dent high-cost production and support higher demand, the IEA highlighted. One indication of the success of the Saudi-led OPEC strategy was their growing share in the otherwise comparatively healthy Asian crude markets too. From January to June 2015, total crude oil imports reported for seven major Asian countries averaged 19.1 million bpd, about 700,000 bpd higher than during the same period in 2014. The share of these crude oil imports from Saudi Arabia averaged 23.2 percent from January to June, compared to 23.9 percent in the same period in 2014. Exports to Asia make up more than half of Saudi Arabia's total crude exports in much of 2014 and 2015. Additionally, US imports of Saudi medium and medium light crude oil also rose by 275,000 bpd over the second quarter of 2015, even though US total imports from OPEC was down on lower - basically because of less exports of Iraqi oil to the US. Despite all this - the debate is far from over. While some continue to point out the success of the OPEC strategy, others still seem skeptical. Crude futures fell 2 percent or more on Friday a week before, a after influential Wall Street trader Goldman Sachs reported cutting its outlook on oil, lowering its 2016 forecast for US crude to $45 a barrel from $57 previously, and Brent to $49.50 from $62, citing oversupply and concerns over China's economy. "The oil market is even more oversupplied than we had expected and we forecast this surplus to persist in 2016," Goldman said in the note entitled "Lower for even longer." Citing "operational stress" as a growing downside risk, it projected crude could even fall to near $20 a barrel. Germany's Commerzbank has also cut its oil outlook, joining a long list of banks that have downgraded crude price projections on supply glut concerns. The debate is on. Jury is out. Yet, more voices are now stressing turnaround could be closer than anticipated earlier. Let's keep our fingers crossed.
