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Thursday, December 14, 2017

OPEC and the tanker market

 

Tanker demand in the last year has been strong. Middle East oil production in March was the highest since 2000 and the total number of VLCC fixtures in the 1st quarter of 2004 from all areas was also the same as in 2000, when it reached a record level of an average of 142 per month. However, the number of spot fixtures from the persian Gulf had an all time record in January of 146, according to EA Gibson. Middle East oil production has to a great extent been the pulse of the tanker market. The strong activity in January means that the average for the first quarter is high, even if the number of fixtures from the Middle East declined to below normal levels in February and March - 85-87 fixtures per month. Some 47% of the VLCC fixtures 1Q04 were AG-East, 25% were AG West, 25% were to the Red Sea and the balance other fixtures.

OPEC’s production aim or quota as from 1 April 2004 is to be reduced by 1 mbd to 23.5 mbd. OPEC’s production in March was, according to IEA, 28.2 mbd and with the strong oil prices it is unlikely that it will be much reduced. Iraq’s oil production in March was 2.4 mbd, the highest since March 2002. In August 2000 Iraq produced some 3 mbd. The maximum reported after the Iran/Iraq war was 3.4 mbd in June 1990 and an all-time high of 3.7 mbd occurred in October-November 1979. Saudi Arabia’s oil production peaked in October 1980 at 10.6 mbd, and bottomed at 2.2 mbd in August 1985. Since 1990 oil production in Saudi Arabia has varied between 9.1 mbd in April 2003 and the minimum of 5.3 mbd May-August 1990. The third big Middle East oil producer is Iran, which reached its highest oil production of 6.1 mbd in September 1978. The highest since 1990 was 4.1 mbd in November 2003. Kuwait’s production of 2.0 mbd is some 0.6 mbd below its all-time high in November 1978.

OPEC’s well head crude oil production peaked in 1978 at 33.8 mbd, compared to production in March 2004 of 28.2 mbd and 29.5 in October 2000, the peak since 1990. The lowest production was 15.1 mbd in March 1987 and the lowest since 1990 was 17.8 mbd in August 1990. In an historic context the OPEC countries are currently, therefore, faring quite well, even if their market share is diminishing. Most OPEC countries need high oil prices to balance their budgets. For example, Saudi Arabia’s population has more than doubled since 1982. Oil revenues per capita (in 1973 dollars) were USD 8,015 per capita in 1982, bottomed at USD 1,105 per capita in 1998 (when the average nominal oil price per capita was USD 12.3 per barrel) and reached USD 1,539 per capita in 2002, the latest year OPEC provides figures for. The oil price has over the period since 1982 varied from a yearly average of USD 12.3 per barrel in 1998 to USD 32.5 in 1982. The real oil price adjusted by inflation based on the 1973 dollar has varied between USD 3.1 per barrel in 1973, USD 14.2 per barrel in 1981, and USD 4.8 per barrel in 2002.