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www.fueloilnews.com | FUEL OIL NEWS | JANUARY 2017 9 FUELS EIA NE WS ¦ EIA SAYS ITS FORECAST REFLECTS OPEC AGREEMENT In EIA's December Short-Term Energy Outlook, both the West Texas Intermediate and Brent crude oil 2017 price forecasts increased by about $1 per barrel (b) from the November STEO, with prices expected to average $51/b and $52/b, respectively. The WTI price is forecast to average $49/b in the first half of 2017 and end the year at $54/b, while the Brent price is forecast to average $50/b in the first half of 2017 and end the year at $55/b. The forecast includes consideration of the Organization of the Petroleum Exporting Countries' (OPEC) recent announcement to reduce production. However, the agreement only resulted in small changes to the STEO forecast. At the November 30 OPEC meeting, member countries agreed to reduce production by approximately 1.2 million barrels per day (b/d) from an October baseline and to lower OPEC's production ceiling to 32.5 million b/d beginning January 1, 2017. The agree- ment is meant to last six months with an option to extend for an additional six months. (For more on the OPEC announcement, see the next item, "OPEC to Cut Production"). EIA adjusted the December STEO by reducing OPEC's crude oil production by 100,000 b/d in the first quarter of 2017 to 32.8 million b/d. The difference between OPEC's and EIA's production estimates reflects, in part, differences in production in Indonesia, Libya, and Nigeria, which are not participating in the agreement. OPEC's agreed-upon output levels for early 2017 were similar to EIA's November STEO forecast, and already included some expectation of slower production growth in 2017. Several non-OPEC producers also announced their intention to freeze or reduce production, with the agreement stating that non-OPEC countries will reduce production by 600,000 b/d. Trade press indicates that Russia will account for 300,000 b/d of this reduction, staged over the first quarter of 2017, but it is currently unclear where the other 300,000 b/d will come from other than modest reductions from some Persian Gulf nations such as Oman. Oil prices rose as the OPEC agreement came together and was announced. However, the extent to which the plans will be car- ried out and actually reduce supply below levels that would have occurred in its absence remains uncertain. A price recovery above $50/b could contribute to supply growth in U.S. tight oil regions and in other non-OPEC producing countries that do not par- ticipate in the OPEC-led supply reductions. Crude oil prices near $50/b have led to increased investment by some U.S. production companies, particularly those operating in the Permian Basin in Texas and New Mexico.—Matthew French, principal contributor ¦ OPEC TO CUT PRODUCTION The Organization of the Petroleum Exporting Countries said that it would cut production by 1.2 million barrels a day from 33.6 mil- lion barrels and said it expects producers from outside the group, including Russia, to join with additional cuts totaling 600,000 barrels a day, The Wall Street Journal reported. The OPEC deal to reduce oil output propelled crude prices more than 8%, the Journal reported. The announcement followed the 171st meeting of OPEC, held in Vienna, Austria, on Nov. 30, 2016. Here is an excerpt from a statement OPEC issued after the meeting: The global oil market has witnessed a serious challenge of imbalance and volatility pressured mainly from the supply side. It has led to significant investment cuts in the oil industry, which has a direct impact on offsetting the natural depletion of reservoirs and in ensuring security of supply to producers. Current market conditions are counterproductive and dam- aging to both producers and consumers, it is neither sustainable nor conducive in the medium- to long-term. It threatens the economies of producing nations, hinders critical industry invest- ments, jeopardizes energy security to meet growing world energy demand, and challenges oil market stability as a whole. There is a firm and common ground that continuous collab- orative efforts among producers, both within and outside OPEC, would complement the market in restoring a global oil demand and supply balance, in particular the drawdown in the stocks overhang, which is currently at a very high level. At this conjuncture, it is foremost to reaffirm OPEC's contin- ued commitment to stable markets, mutual interests of producing nations, the efficient, economic and secure supply to consumers, and a fair return on invested capital. Consequently, the recovery of oil market balance could be addressed through dialogue and cooperation among producing countries as a way forward for cohesive, credible, and effective action and implementation. Hence, it is under the principles of good faith that countries participating in today's meeting agree to commit themselves to the following actions: 1. In the fulfillment of the implementation of the Algiers Accord, 171st Ministerial Conference has decided to reduce its production by around 1.2 mb/d to bring its ceiling to 32.5 mb/d, effective 1st of January 2017; 2. The duration of this agreement is six months, extendable for another six months to take into account prevailing market conditions and prospects; Monthly West Texas Intermediate and Brent spot crude oil prices dollars per barrel 70 60 50 40 30 20 10 0 Jan 2015 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 West Texas Intermediate Brent forecast