June 26, 2007 -- The
world needs more oil if another price surge is to be averted,
the Centre for Global Energy Studies said June 25, disagreeing
with the OPEC oil cartel's insistence that global crude supply
is sufficient to meet demand.
Dated Brent crude prices look set to be up nearly $11/barrel
between the first and second quarters of this year, the biggest
quarterly increase this decade. That "would seem to suggest the
world is short of oil and ought to be providing a clear signal
to OPEC that its members need to put more oil into the market,"
the CGES said.
The CGES noted OPEC supports its stance by highlighting
refining bottlenecks, particularly in the US, and geopolitical
tensions in the Middle East and Nigeria as the driving forces
behind the latest price surge. It acknowledged US crude stocks,
at nine-year highs in mid- June, and refinery utilization
figures averaging 88% since the beginning of this year appeared
to support OPEC's interpretation.
"However, the US is only the most visible part of the global
oil system and the situation elsewhere paints a very different
picture," the CGES said, noting that while technical problems
had kept US refinery runs low, global throughputs were up on
last year following increases in China, India and Russia.
Global oil inventories, it added, are likely to show only
modest growth in the second quarter of this year, "a quarter
when stocks would usually be expected to increase by around 1
million b/d, while a continuation of OPEC's current output level
into the third quarter would lead to a global stockdraw of
around 140,000 b/d during the second 'stock-building' quarter of
the year.
Rising geopolitical tension
"Rising geopolitical tension should act as a signal for
increasing production rather than as an excuse for inaction,"
the CGES said, adding that refiners preferred to hold higher
stocks to offset the risks of future supply disruption.
"OPEC counters that it can make additional supplies available
in the event of a disruption, but the overall time lags in a
supply chain that involves taking and implementing a decision to
raise output, positioning vessels to load and deliver the
additional oil to market, moving that oil to refineries,
processing it and delivering the product to consumers, can
amount to as much as 12 weeks, whereas prices react
immediately," the CGES said.
Furthermore, the CGES said, the US has not solved its
gasoline supply problems and will be even more reliant on
imports in the coming months. Asian refinery runs are set to
rise over the summer as plants come out of turnaround, US
refiners will also be seeking to boost throughputs and European
throughputs will remain high to supply the US market, it said.
"Global oil supply is little changed from last year, whereas
refinery runs are up by nearly 1 million b/d," the CGES said.
Leo Drollas, deputy executive director of the London-based
body, said that based on current figures, the average
second-quarter stock build was likely to be just 70,000 b/d in
contrast to second-quarter builds of 1 million b/d in 2004, 1.8
million b/d in 2005 and 1.1 million b/d last year.
For the third quarter of this year, "on current numbers,
instead of having a build, we are expecting a stockdraw of
140,000 b/d," he said. "Come the beginning of October, we are
going to have a much tighter stock position worldwide," he
added.
The CGES report said "given the supplyside uncertainties and
the fragile geopolitical backdrop, it does not take much to
envisage a near-term future in which Dated Brent stays above
$70/barrel."
OPEC and the EU agreed after top level talks in Vienna June
21 there was no current shortage of crude oil (ON 6/22). OPEC
Secretary General Abdalla el-Badri said he saw no need to add
more crude oil to a market characterized by tight refining
capacity and a seasonal shortage of gasoline.
Andris Piebalgs, European Commissioner for Energy, agreed
with OPEC's assessment of the market, saying there was "a quite
comfortable margin of spare capacity" and that stocks were high.
"At this stage, I don't see a shortage in the market," he said.
"But we also see that there are factors that could make a
real impact on supply, that could make an impact on the market
such as the strike in Nigeria. We should be vigilant. If there
is a situation where for whatever reason there is disruption of
supply, there should be a mechanism of an increase of supply to
the market," Piebalgs said.
A joint statement issued after the talks said the EU had
"expressed its concern about expected seasonal increase in
demand coupled with possible supply disruptions over the next
few months which could lead to tightening in the oil market."
