OPEC ministers are expected to leave their oil-production ceiling unchanged when the group meets this week, analysts say. What really matters for markets, they say, is whether Saudi Arabia will respond to global supply shortfalls by pumping a record amount of crude.
Six months ago, energy analysts were predicting that output from the Organization of the Petroleum Exporting Countries would climb too high and that Saudi Arabia would need to cut production to make room for other suppliers. They changed their minds after production from Libya, Iran and Iraq failed to rebound as anticipated, and industrialized nations' stockpiles fell to the lowest for the time of year since 2008.
Saudi Arabia may need to pump a record 11 million barrels per day by December to cover the other member nations, said consultant Energy Aspects Ltd.
"Now it's not whether the Saudis will make room, but whether they'll keep it going and maintain enough spare capacity," said Jamie Webster, a Washington-based analyst at IHS Inc., an industry researcher. "OPEC is increasingly having a hard time just doing its job of bringing all the barrels needed."
Even as the North American shale revolution propels U.S. production to a three-decade peak, supply in other parts of the world is faltering. A battle for political control in Libya, pipeline attacks in Iraq and prolonged sanctions against Iran are preventing those nations from reviving output. While U.S. crude inventories rose to a record in April, restrictions on exports are keeping those supplies in the country, tempering forecasts that global oil prices will decline this year.
Deutsche Bank AG, Morgan Stanley, Barclays PLC and Citigroup Inc. raised their 2014 Brent-crude price forecasts over the past three months, citing supply risks. The median estimate of the four banks climbed to $107.75 per barrel, from $100.25 as of Dec. 31. The grade has averaged $108.26 per barrel this year, compared with $108.70 in 2013.
OPEC, which produces about 40 percent of the world's oil, will meet Wednesday in Vienna to discuss its 30 million-barrel daily output target. Ministers from Saudi Arabia, Angola and Kuwait said they expect no change, as did 22 of 23 analysts and traders surveyed by Bloomberg News.
OPEC's Economic Commission Board, a panel that reviews supply and demand levels before the meeting, concluded on Thursday that the current production level is adequate, according to two OPEC delegates.
The International Energy Agency, the Paris-based adviser to 29 nations, recommended May 15 a "significant rise in OPEC production" to meet demand of 30.7 million barrels per day in the second half of the year. Oil inventories in advanced nations were at 2.62 billion barrels in April, the lowest for that month since 2008, the year Brent crude reached a record $147.50 a barrel, the agency's data show.
Pushing output up that high would be "a Herculean task for the group to surmount given that production has been below 30 million barrels per day for the last five months," London-based Energy Aspects said in a May 27 research note.
The situation has reversed since OPEC last met in December. At that time, the energy agency indicated the group would need to reduce output by about 3 percent in the first half of 2014 to make way for North America's booming shale oil supplies.
U.S. oil production rose to 8.47 million barrels per day in the week that ended May 23, the highest since 1986, according to the Energy Information Administration. The nation's crude inventories were at 399.4 million barrels through April 25, the highest in weekly data since 1982, the administration estimates.
Several OPEC nations have failed to increase output as their ministers suggested at the group's last meeting in December. Iraq was aiming for a surge of about 30 percent in 2014 to 4 million barrels per day, Oil Minister Abdul Kareem al-Luaibi said. Libya intended to restore within 10 days full daily capacity of almost 1.6 million barrels, from less than 20 percent previously, Oil Minister Abdulbari al-Arusi said. Iran had secured six months of relief from sanctions imposed by Western governments and was seeking its highest output in five years, Oil Minister Bijan Namdar Zanganeh said.
Iraq's daily production contracted 8 percent since reaching a 35-year peak of 3.6 million barrels in February amid political disputes and pipeline bombings, according to the International Energy Agency. In Libya, output has fallen to one-tenth of capacity because of protests at oil fields and strikes at export terminals. Iranian supply is little changed, while an end to sanctions relief looms in July if it cannot reach a broader deal on its nuclear program.
Information for this article was contributed by Maher Chmaytelli, Nayla Razzouk, Wael Mahdi and Fred Pals of Bloomberg News.
Business on 06/10/2014