The Oilholic is in Vienna ahead of the 161st meeting of OPEC ministers and the 5th OPEC International seminar; the latter being a forum where the great and good of this crude world interact with OPEC ministers and other invited dignitaries once every two years. However, even before the proceedings have begun, the cartel’s Monthly Market Report has stirred things up.
Back dated figures for April suggest, OPEC’s production for the month came in 32.964 million barrels per day (bpd) up 631,000 bpd from March. The figure for May came in lower at 31.58 million bpd; but still well above the cartel’s production cap of 30 million bpd. Such a high level has not been recorded since 2008 when the price of crude rose to a spectacular high only to fall sharply as the global financial crisis took hold. The data would suggest that together with non-OPEC sources, the market remains well supplied. Furthermore, in the face of economic uncertainty demand could drop as the economies of India and China show signs of medium term cooling.
On the subject of demand, OPEC notes, “The upcoming driving season might be affected by movements in retail gasoline prices and economic developments worldwide; hence, world oil demand would show a further decline and might see a cut of between 0.2 and 0.3 million bpd from the current forecast of the year's total growth (0.9 million)."
With leading benchmarks Brent and WTI falling below US$100 a barrel this week along with the OPEC basket price, some would think the Saudis would be keen to support a cut in the cartel’s production quota. Figures suggest OPEC's largest producer did in fact reduce its output to 9.8 million bpd in May from 10.1 million bpd in April. That is still the highest Saudi production rate on record for the last three years and the country recently reclaimed its top spot from Russia as the world’s largest producer of crude oil.
However, ahead of the OPEC meeting on June 14, the country’s inimitable oil minister Ali al-Naimi has jolted a few by actually calling for an increase in OPEC’s output. In an interview with the Gulf Oil Review (published by Bill Farren-Price’s Petroleum Policy Intelligence), he said, “Our actions have helped the oil price drop from US$128 in March to about $100 today which has acted as a type of stimulus to the European and world economy…Our analysis suggests that we will need a higher ceiling than currently exists."
"Given our large crude oil reserve situation, we certainly want to see a sustained market for crude oil over the long term. This calls for moderation, but on the other hand, with the cost of oil production going up...a reasonable price is required to ensure exploration can continue," he added.
Clearly the Saudis are on a collision course with other cartel members but since his interview al-Naimi has said he is “happy with the way things are”. Read what you will; we’ve been here before and such OPEC chatter is nothing new, except for the ‘stimulus’ hypothesis which has a nice ring to it. That’s all for the moment folks! Keep reading, keep it ‘crude’!
© Gaurav Sharma 2012. Photo: OPEC Logo on building exterior © Gaurav Sharma 2011.