Opec nations increased output by 300,000 bpd in May

The Organisation of Petroleum Exporting Countries (Opec) increased crude oil production by 300,000 barrels per day (bpd) to 28.39 million bpd in May, according to a Platts survey of Opec members, oil industry officials and analysts. This is an increase from 28.09 million bpd in April.

Production had already risen in April for the first time since August 2008. According to the May production estimate, Opec-11 (those bound by production quotas) is at only 72 per cent compliance with its 4.2 million bpd in crude output cuts agreed late last year. This is down from 78.7 per cent compliance in April and 81.8 per cent in March, according to data posted on the website Ameinfo.com.

May production increases totalling 320,000 bpd from Angola, Iran, Nigeria, Qatar, Saudi Arabia, the UAE and Iraq were slightly offset by a 20,000 bpd decline in Venezuelan output.

"With the recent increases in crude oil prices, the drumbeat that we're on our way back to $100-per-barrel-oil has been growing louder. But this month's surge in output shows that Opec has a lot of production capacity that it can bring on the market relatively quickly, and that should certainly prove a hurdle to any move back to three-digit oil prices," the website quoted John Kingston, Platts Global Director of Oil, as saying.

Before April, Opec production had fallen steadily in response to the plunge in oil demand caused by the global economic recession. Opec-11 output failed to drop to this year's 24.845 million bpd target. The latest estimates leave the Opec-11 some 1.14 million bpd in excess of this target.

Although seven countries increased production in May, the bulk of overproduction occurred in Angola, Iran and Venezuela. Saudi Arabia, despite having boosted production by 110,000 bpd between March and May, was within its quota.

Initial output cuts by the OPEC-11 subject to the ceiling for 2009 were sizeable – 970,000 bpd between December 2008 and January 2009 and 820,000 bpd between January and February. Opec is next scheduled to meet in September.

Opec itself said on Friday that oil production rose for a second month in May, weakening compliance with quotas, as the group lowered its forecast for global oil demand in 2009.

The 11 Opec members bound by production quotas, which exclude Iraq, pumped 25.903 million barrels a day in May, an increase of 118,800 barrels a day from April, the Vienna-based organisation said in its monthly oil report, citing secondary sources that include estimates from analysts and news organisations.

Oil's 42 per cent rally since April has encouraged some Opec members to backtrack on record output cuts announced through the end of last year after prices slumped. Opec pledged to adhere with targets more closely at a meeting in Vienna on May 28 as world demand shrinks. Angola, Venezuela and Nigeria increased output the most in May, the report said.

"In light of the considerable challenges the world economy and commodity market, particularly the oil market, have undergone, the worst appears to be behind us," the secretariat said in its report. "Prices have not only remained steady, but have even moved higher."

Opec, which supplies about 40 per cent of the world's oil, implemented 75 per cent of planned output cuts of 4.2 million barrels a day, compared with 77 percent in April, based on data in the report.

The International Energy Agency (IEA) said the producer group complied with 74 per cent of the reductions.

The benchmark crude price used by Opec, derived from the cost of oil produced by each of its 12 members, averaged $56.98 in May, about 14 per cent higher than April, Opec said in its report. That is the highest average in seven months.

The 12 Opec members, including Iraq, pumped 28.271 million bpd last month, compared with 28.136 million bpd in April, according to the report. As the global economy stabilises, Opec said it is expecting the decline in oil demand to slow.

The group forecasts that consumption will shrink by 1.89 per cent this year, or 1.62 million bpd, to 83.8 million bpd. Last month, it estimated global demand would shrink 1.83 per cent, or 1.57 million bpd to 84.03 million barrels.

"World oil demand appears to be settling down," the secretariat said in the report. "Industrial production activities are steadying and in some parts of the world have even improved slightly."

The IEA raised its global oil-demand forecast for the first time in 10 months on signs that the economic slowdown is abating. The advisor to 28 nations increased its global oil demand estimate for this year by 120,000 bpd to 83.3 million barrels.

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