OPEC cuts estimated call on its own crude

By Margaret McQuaile, Richard Swann in London

January 17, 2013 - OPEC has lowered its estimate of the demand for crude oil produced by its member countries this year to 29.65 million b/d, 100,000 b/d lower than its previous forecast a month ago and some 715,000 b/d below estimated December output of 30.365 million b/d.

But the difference between actual production, as derived from the secondary sources OPEC uses to monitor its output, and the forecast call on OPEC crude is considerably starker at more than 1 million b/d when compared with the 29.27 million b/d projection for the current quarter of 2013.

The cut in the call on OPEC, published in the organization's latest monthly oil market report, stems largely from an increase in the forecast for supply next year from non-OPEC countries.

OPEC now expects non-OPEC supply to reach 53.92 million b/d in 2013, up 930,000 b/d from this year's estimated 52.98 million b/d and 90,000 b/d higher than the estimate in the previous monthly report.

The US alone is expected to increase oil production by 490,000 b/d this year, with Canada contributing a further increase of 180,000 b/d, OPEC said.

On the demand side, OPEC expects world oil consumption to rise by 760,000 b/d to reach 89.55 million b/d in 2013, 10,000 b/d lower than its previous estimate.

China is currently expected to see its oil demand rise by 350,000 b/d to reach 10.06 million b/d this year, but OPEC said this figure could be increased.

"Chinese oil demand in 2013 could be higher-than-expected as exports and investments are picking up," it said in the report.

Estimated OPEC output of 30.365 million b/d in December reflects a 465,000 b/d drop from 30.829 million b/d in November that was due largely to Saudi Arabia reducing output by 421,000 b/d to 9.211 million b/d in December from 9.632 million b/d in November.

The report also showed a notable drop of 196,000 b/d from Iraq, where output was estimated to have dipped to 3.011 million b/d in December from 3.208 million b/d in November.

OPEC last year started running two production tables in its monthly report, one showing the secondary source estimates and the other showing direct submissions from member countries.

There are wide differences between the secondary source estimates and those submitted directly by OPEC members.

The direct submissions for December total 31.422 million b/d, more than 1 million b/d higher than the total derived from secondary sources.

Sanctions-hit Iran, according to the secondary source estimates, produced 2.656 million b/d in December, slightly down from an estimated 2.677 million b/d in November.

But Iran has told OPEC it pumped 3.71 million b/d in December, up marginally from 3.708 million b/d in November, leaving the figure more than 1 million b/d above the secondary source estimate.

According to the direct submissions, Saudi Arabia has told OPEC that it reduced crude production to 9.025 million b/d in December, down 467,000 b/d from the figure of 9.492 million b/d it gave as its November output.

These figures match those told to Platts last week by an industry source who said the fall in Saudi production was a response to weaker demand from customers.

Reports of the lower Saudi volumes had stirred some speculation as to the OPEC kingpin's oil price aspirations and on January 14 a senior Saudi oil ministry official issued a statement insisting that Riyadh had not reduced outputin order to push prices higher.

"Recent media reports wrongly interpret Saudi Arabia's production data for December, accusing the country of a deliberate attempt to push the oil price higher. These reports are categorically wrong," oil ministry adviser Ibrahim al-Muhanna said, pointing out that output fluctuated from month to month and, at this particular time, was driven primarily by customer needs and not by prices.

Muhanna said the kingdom stood ready to respond to resumed growth in the world economy this year, would meet all the needs of customers and remained strongly committed to a stable oil market.

According to the World Bank in its latest Global Economic Prospects report, released January 16, the key element for price stability will be how well OPEC, "and more importantly Saudi Arabia," can address changing demand conditions.

"Historically, OPEC has been able to respond quickly to defend a price floor by cutting production sharply, but has been unwilling to respond as quickly to set a price ceiling," it said.

The World Bank is forecasting an average oil price of $102/barrel this year, down from $105/b in 2012, and $102.20/b in 2014, "as supplies accommodate moderate demand growth," though it stresses that there are both upside and downside risks to these forecasts.

"The assumptions underpinning these projections reflect the upper end cost of developing additional oil capacity, notably from oil sands in Canada, currently assessed by the industry at $80/b in constant 2012 dollars. It is expected that OPEC will continue to limit production to keep prices relatively high. However, the organization may be sensitive to letting prices rise too high, for fear of inducing technological changes that alter the long-term price of oil," it said.

On the other hand, the Bank said, ongoing political unrest in the Middle East continues to pose risks to supply.

"A major supply cutoff could limit supplies and result in prices spiking well above $150/b. Such [an] outcome would depend on numerous factors, including the severity, duration, policy actions on emergency reserves, demand curtailment, and OPEC‘s response. Downside price risks, on the other hand, include weaker oil demand due to slower economic growth, especially by emerging economies," it said.

However, the Bank said, "in the near term, oil prices are likely to be capped at around $120/b because of price-induced demand restraint and publicly stated intentions of strategic reserve releases by the US, UK, and France. Upside risks stem from technical and geopolitical problems, particularly in countries struggling with conflict and security, including Libya and Iraq."