Economic Report 2018

In reality, total reductions in output from OPEC and non-OPEC participating countries have been around 20 per cent greater than the 1.8 million bpd target, largely due to production issues in Venezuela and declines in output from Mexico. At the 174 th OPEC meeting in June 2018, members and supporting countries agreed they would aim to increase total production to be in line with the agreed levels, effectively meaning that countries such as Saudi Arabia would be able to increase output to offset reduced production. This action has helped ease concerns around a disruption to Iranian exports and will add around 1 million bpd to global supplies during the second half of 2018, helping to balance the global market and increase stability. Although it may have been expected that increased supply would act to reduce oil prices, Brent crude prices increased by around 8 per cent in the week following the decision to increase OPEC supply.

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OPEC The Organization of the Petroleum Exporting Countries (OPEC) represents the interests of 15 Member Countries, with the aim of bringing stability to the oil market whilst ensuring continued supply to consumers, continued income to producers and a fair return on capital for investors.

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Membership of OPEC is open to countries with ‘substantial net exports of crude petroleum’ and which have ‘similar interests’ to other member countries.

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Membership of the organisation has been subject to change in recent years. At its 174 th meeting in June 2018, the Republic of Congo (Brazzaville) gained Full Member status, following a request made in January. The country produced around 291,000 bpd in 2017 3 , and has targeted production of 350,000 bpd by the end of 2018, making it the third-largest producer in sub-Saharan Africa after Nigeria and Angola. Congo’s proved reserves stand at 1.6 billion bbls.

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The addition of Congo also follows the admission of Equatorial Guinea in 2017, and the re-joining of Gabon in 2016.

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The reduced OPEC supply throughout the first half of 2018 has largely been offset by strong non-OPEC production. IEA forecasts estimate that non-OPEC production could grow by almost 2 million bpd, driven largely by increases in output from US shale plays, where production has grown by 1.6 million bpd so far this year. The US’ rig count 4 , a good indicator of future US shale production, is up around 10 per cent on last year, and the onshore industry is also benefitting from improved well productivity and drilling efficiency. However, concerns persist around the continued longer-term growth in output of US shale oil. Capacity limitations are constraining many US onshore operators as access to infrastructure, drilling equipment and labour limit growth potential. Capital efficiency, as well as prioritising returns to shareholders, will also remain at the top of the operator agenda.

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3 www.bp.com/content/dam/bp/en/corporate/pdf/energy-economics/statistical-review/bp-stats-review-2018-full- report.pdf 4 phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-rigcountsoverview

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