Not Logged In, Login,

Monday, September 24, 2018

OPEC adapt production to the market

Middle East oil production dropped by 0.35 mbd in April compared to March 2004, but was still about one million barrels per day higher than in April 2003, when Iraq only produced 0.6 mbd compared to 2.3 mbd in April 2004.

It is as usual Saudi Arabia which is the main swing producer, producing one million barrels per day less than in April 2003. Saudi Arabia has just called on the biggest oil-exporting countries to boost production, in a dramatic recognition that high oil prices could stimulate research into and production of alternatives to oil and stifle global economic recovery.  It is a reversal of policy for Saudi Arabia, which in late March lobbied the Organisation of Petroleum Exporting Countries (OPEC) to cut production because of fears of a seasonal drop in demand as winter in the world's biggest oil consuming regions drew to a close.

Ali Naimi, the kingdom's energy minister, said in a statement on 10 April 2004: "We do not want to see prices rise to the level that they negatively affect the growth of the international economy or the demand for oil."  His announcement had an immediate negative effect on the markets but prices bounced back after Iraq said it had halted flows from the Kirkuk oilfield through its northern pipeline to Turkey.  Oil shipments from the Persian Gulf have a particularly strong impact on the tanker market. Claude Mandil, director of the International Energy Agency, has welcomed a Saudi proposal that OPEC should raise output limits, but said the move would not be enough to bring down soaring oil prices.

The graph above shows the tonne-miles generated by different trade routes.  It makes a huge difference for the tanker market whether the US takes the oil from Mexico, Venezuela (Puerto La Cruz), Norway (Mongstad), Iraq via the Mediterranean (Ceyhan) or the longest route from the Persian Gulf (Ras Tanura) via the Cape.  It equally makes a big difference for the tanker market whether the Middles East oil is going to the US or Japan.

The “call on OPEC oil plus stock change” has been, according to the International Energy Agency (IEA), at its lowest during the 2nd quarter. OPEC crude oil production during the 1st quarter was 27.9 mbd and stock increased by 0.8 mbd.  The call on OPEC oil plus stock change is projected to be reduced to 24.8 mbd in the 2nd quarter.  This is still 0.9 mbd higher than the IEA projection was in March and tanker prospects have been continuously improving in 2004. The world oil consumption projection for 2004 has been revised upwards from 79.63 mbd in January to 80.61 mbd in May, non-OPEC production has been revised downwards from 50.46 mbd in January to 50.24 mbd in May and the call on OPEC oil plus stock change has been revised upwards from 25.2 mbd to 26.4 mbd over the same period.