Unusually cold weather in the northern hemisphere appears to have held OPEC crude supply firmer than OPEC’s own supply/demand figures would warrant, the latest MEES output data indicates. January OPEC output appears little changed from December at more than 29mn b/d, despite a projected 600,000 b/d fall in the call on OPEC crude from last quarter to this quarter in the group’s last Monthly Oil Market Report (MEES, 25 January). And for February, the latest shipping projections show exports surging to 12-month highs. Given that OPEC projects a further 900,000 b/d decline in demand for its crude in the second quarter, February’s supply spurt may need to be short-lived to avoid undermining current buoyant prices.
MEES had not obtained its usual monthly firm figures for Iranian output by press time, but preliminary data showed output from the 11 members that participate in production deals hit an 11-month high (see table). February sailings are only 200,000-300,000 b/d short of levels seen in 2007-08, according to tanker trackerOil Movements. And volumes to Asia have eclipsed that year. “The East is running the show,” notes Roy Mason of Oil Movements. Speaking to Al-ArabiyaTV in Davos, Khalid al-Falih, CEO of state-owned Saudi Aramco, said: “In the long-term we don’t expect OECD countries to lead growth in the oil sector.” Growth will come from Asia, especially China, India and the Middle East. “Saudi Arabia precisely is the country with the greatest growth,” Mr Falih noted. But volumetrically, it is China that counts. Last year it boosted Saudi crude imports from 735,000 b/d to 840,000 b/d, as well as increases from other Middle East Gulf producers.

The sustained northern hemisphere cold snap may indeed have provided enough of a short term demand tonic to warrant a relaxed view of immediate fundamentals. “The market seems to be good. True, stocks are high, but this been accepted by the markets,” notes a Gulf source. “The global economy seems back on track.” But in the medium term OPEC will have to face the need for greater output discipline, if it wants to sustain the $70/B-plus OPEC Basket price levels it appears happy with. “The consensus view is that prices are going to rise next year. But we see the opposite with prices falling in the second half of the year,” warns Leo Drollas, Deputy Executive Director and Chief Economist of the Center for Global Energy Studies (CGES). “We see non-OPEC output and also especially OPEC NGLs, which aren’t subject to quotas, weighing down prices.” Certainly, while fundamentals may not be the force in price formation they were in the past, supply and demand balances strongly back Dr Drollas’ prognosis, should OPEC not tighten up output discipline.

Should the ceasefire in the Niger Delta hold, and election violence not affect plans to boost Iraqi output, OPEC will be facing further challenges to keep to quota. And with budgetary demands increasing across the board, all the indications are that discipline will be harder to enforce this year. Bad weather affecting southern exports somewhat depressed Iraqi production last month, but if the record of the past year is any guide, this should bounce back. And by the end of the year, the first 100,000 b/d of extra capacity should be online from BP’s Rumaila ‘mega-project’ in the south. Officially OPEC is playing down the threat from Iraq, arguing that a decision on a quota for Baghdad, the only OPEC member outside the quota system, remains a long way off. “In two years we will discuss it. In four-five years we’ll have to agree on something,” OPEC Secretary-General ‘Abd Allah al-Badri told reporters on 1 February.

Badri: ‘Situation Critical’
The global economy is recovering, but the fragility of the recovery demands vigilance and constant dialogue between consumers and producers, Mr Badri argued. “World oil demand fell dramatically in 2008 and 2009 – by 2mn b/d. It is the first time since the early 1980s that oil demand has declined in two successive years,” he said. “Thanks in part to the massive fiscal and monetary intervention by many governments, there are signs that a recovery is under way. But its strength and pace are still highly uncertain.” Uncertainty means that as “early as 2020, demand for OPEC crude could be as low as 29mn b/d or as high as 37mn b/day,” he argued. “This translates into an uncertainty gap for upstream investments in OPEC member countries of over $250bn. There is, therefore, the very real possibility of wasting financial resources on unneeded capacity. In the long term, world oil demand is a bit more encouraging. OPEC’s reference case is expected to grow from 85mn b/d in 2008 to nearly 106mn b/d by 2030.”

OPEC continues to invest, despite the economic downturn. “In 2009, around 30 projects came on stream in OPEC countries, resulting in 1.5mn b/d of net crude and liquids capacity. For the next five years, the completion of another 140 projects is expected to add around 12mn b/d of gross crude and liquids capacity,” he said. This should provide spare capacity of more than 6mn b/d by 2013. Cumulative OPEC downstream investment to 2015 is estimated around $40bn, Mr Badri said. “This will expand refining capacity by more than 2mn b/d to more than 10m b/d. In addition, another $25bn is being invested abroad, adding further capacity to the global refining system.”

OPEC Crude Oil Production January 2009 – January 2010 (MEES Estimates – ‘000 B/D)

		2010	2009
	Target	Jan	Dec	Nov	Oct	Sep	Aug	Jul	Jun	May	Apr	Mar	Feb	Jan
Algeria	1,203	1,250	1,250	1,260	1,270	1,270	1,260	1,250	1,250	1,250	1,230	1,250	1,250	1,280
Angola	1,517	1,850	1,820	1,850	1,870	1,840	1,810	1,780	1,800	1,700	1,650	1,620	1,650	1,780
Iran*	3,336	3,750	3,750	3,620	3,560	3,620	3,720	3,800	3,700	3,820	3,750	3,620	3,700	3,780
Iraq	NA	2,507	2,570	2,498	2,450	2,490	2,550	2,515	2,420	2,330	2,330	2,300	2,260	2,350
Kuwait†	2,222	2,240	2,250	2,270	2,270	2,260	2,270	2,270	2,270	2,225	2,220	2,230	2,300	2,400
Libya	1,469	1,500	1,500	1,510	1,510	1,530	1,550	1,550	1,550	1,530	1,500	1,520	1,520	1,580
Nigeria*	1,673	1,980	2,020	1,930	1,900	1,750	1,700	1,730	1,700	1,780	1,750	1,800	1,780	1,800
Qatar*	731	815	802	791	759	770	771	819	829	777	810	822	855	778
S Arabia*†	8,051	8,180	8,120	8,200	8,200	8,180	8,180	8,150	8,100	8,050	8,000	8,000	8,000	8,100
UAE	2,223	2,270	2,270	2,250	2,250	2,230	2,250	2,300	2,300	2,250	2,220	2,250	2,200	2,390
Venezuela	1,986	2,250	2,250	2,260	2,260	2,260	2,280	2,210	2,210	2,210	2,210	2,200	2,200	2,230
Ecuador	434	485	485	485	485	480	475	470	500	490	480	470	480	490
Total		29,077	29,087	28,924	28,784	28,680	28,816	28,844	28,629	28,412	28,150	28,082	28,195	28,958
OPEC 11/12**	24,845	26,570	26,517	26,426	26,334	26,190	26,266	26,329	26,209	26,082	25,820	25,782	25,935	26,608

* Revised

†   Includes 50% share of Neutral Zone output.