OPEC cuts opens up arbitrage opportunities
OPEC cuts took effect on January 1, 2017, with OPEC and non-OPEC producers agreeing to take a total of 1.8 mb/d off the market.
The effort, which is expected to contribute to a rebalancing of oil markets and, as a result, push up the price of oil, has reached ~91% compliance on January volume, with a combined of ~1.6 mb/d taken offline from October volumes. The promise was to take production down to 32.5 mb/d on average over six months, and total output in January stood at 32.9 mb/d. Not all OPEC nations are included in cuts, with Iran, Libya, and Nigeria exempt.
If OPEC cuts remain through the year, Atlantic basin supply will be the only growth market. Through the year, US production is expected to increase by ~400 kb/d, while the ramping up of Kashagan field is forecast to increase Black Sea exports by ~200 kb/d.
Libyan / Nigerian supply also has the potential to increase by ~500 kb/d. Taking into account the expected supply deficit forecast for Asia in 2017, there is the potential for more Atlantic crude to move to the Pacific markets.
US producers have ramped up drilling, which could result in more crude volumes available for export. This uptick could be positive for mid-sized tanker demand as Asian buyers look to take advantage of cheaper light barrels out of the Atlantic. The ramp is largely due to firming oil prices.
OPEC cuts have put upside pressure on oil prices through the month of January, with Brent benchmarked crudes increased by $~7 / bbl, or 15%, since cuts were formalized on November 30, 2016. The Brent-Dubai spread has also narrowed as a result of cuts, which has opened arbitrage opportunities for Atlantic grades to Asia.