Lofty oil prices make life easy for OPEC but tough challenges lie
ahead
By Margaret McQuaile
January 9, 2013
OPEC had a relatively easy 2012 with oil prices holding above the
$100/barrel mark despite a still fragile global economy. There were no
major public disagreements over output policy between members, unlike in
2011 when the cartel’s June conference ended without an agreement on
production levels and with Saudi Arabian oil minister Ali Naimi
describing the meeting as the worst ever.
But the next couple of years could present some challenges to OPEC. One
particular challenge will be the steep fall in US demand for imported
oil, as highlighted on January 8 in the latest Short-Term Energy Outlook
from the US Energy Information Administration, which is the statistics
arm of the Department of Energy.
US net imports of oil have fallen by 40%, or 5 million b/d, over the
past seven years. Having peaked at 12.5 million b/d in 2005, net oil
imports averaged just 7.5 million b/d in 2012. By 2014, the EIA expects
US net imports to have fallen to 6 million b/d, thanks to the
astonishing rise of US shale oil production. Excluding products imports,
the agency expects net imports of crude to fall from 8.46 million b/d in
2012 to 7.58 million b/d in 2013 and then to 7.06 million b/d in 2014, a
drop of 16% over just a couple of years.
Amid stagnating or waning oil demand in the industrialized countries,
the focus of oil-producing countries has already been switching to the
growth markets of Asia. And it’s not only OPEC’s Gulf producers that
have been feeding Asia’s growing appetite; West African and Latin
American producers are also looking to Asia to place their crude.
As it happens, OPEC’s seemingly disastrous June 2011 meeting turned out
rather well for the Saudis because when the group met again in December
that year, fears of another debacle kept everyone on best behavior and
the meeting produced an overall output ceiling of 30 million b/d with no
individual country quotas. This has left Saudi Arabia, the only OPEC
country with any significant volume of spare capacity, to produce as
much as it needs to meet demand from customers.
Of course, this also puts the kingdom firmly in the role of swing
producer, the onus being largely on Riyadh to cut output if prices fall
sharply over a sustained period. It is Saudi Arabia that the EIA expects
to take on the bulk of the output cuts it expects to become necessary
this year as non-OPEC production grows further and as some OPEC
members–Iraq, Nigeria and Angola–increase output.
Much has been written in recent months about Iraq’s rising production
and how this is set to pit Baghdad against Riyadh as rivalry between
OPEC’s top two producers intensifies.
Certainly, Saudi Arabia has cause to be more than a little concerned
about Iraq’s ambitious plans to boost production and would like to see
Baghdad rejoin OPEC’s quota system sooner rather than later. But Iraq is
probably still a long way off the kind of production volumes that might
pose any real threat to Saudi Arabia’s market management strategy, not
least because of continuing tension between Baghdad and the Kurdish
Regional Government in Erbil.
One particular bone of contention is the establishment by Baghdad of a
new military command to oversee disputed oil-rich territories in
northern Iraq. This resulted in deadly clashes between the Iraqi army
and Kurdish Peshmerga forces in November.
Another problem that has already emerged as a threat to exports is that
of overdue payments to contractors in Iraqi Kurdistan. Iraq’s crude
exports in December fell by 272,000 b/d month-on-month and a huge chunk
of this drop was due to a a re-escalation of the row between Erbil and
Baghdad over the payments issue. Iraqi Kurdistan had supplied as much as
190,000 b/d of crude into the northern export pipeline system earlier in
the year. But by last December 26 volumes, were down to a 4,000 b/d
trickle.
But, in the meantime, things are rolling along nicely for OPEC. Brent
crude prices have started the year at lofty levels of $110-$112/barrel
and the oil producer group is still pumping well above its 30 million
b/d ceiling, which it extended at December 12 talks in Vienna.
© 2012 Platts, The McGraw-Hill Companies Inc. All rights reserved.
To subscribe or visit go to:
http://www.platts.com
|