‘Oh Frack’ for OPEC, ‘Yeah Frack’ for IEA?

In a space of a fortnight this month, both the IEA and OPEC raised “fracks” and figures. Not only that, a newly elected President Barack Obama declared his intentions to rid the USA of “foreign oil” and the media was awash with stories about American energy security permutations in wake of the shale bonanza. Alas, the whole lot forgot to raise one important point; more on that later.

 

Starting with OPEC, its year-end calendar publication – The World Oil Outlook – saw the oil exporters’ bloc acknowledge for the first time on November 8 that fracking and shale oil & gas prospection on a global scale would significantly alter the energy landscape as we know it. OPEC also cut its medium and long term global oil demand estimates and assumed an average crude oil price of US$100 per barrel over the medium term.

 

“Given recent significant increases in North American shale oil and shale gas production, it is now clear that these resources might play an increasingly important role in non-OPEC medium and long term supply prospects,” its report said.

 

The report added that shale oil will contribute 2 million barrels per day (bpd) towards global oil supply by 2020 and 3 million bpd by 2035. If this materialises, then the projected rate of incremental supply is over the daily output of some OPEC members and compares to the ‘official’ daily output (i.e. minus the illegal siphoning / theft) of Nigeria.

 

OPEC’s first acknowledgement of the impact of shale came attached with a caveat that over the medium term, shale oil would continue to come from North America only with other regions making “modest” contributions over the longer term at best. For the record, the Oilholic agrees with the sentiment and has held this belief for a while now based on detailed investigations in a journalistic capacity (about financing shale projects).

 

OPEC admitted that the global economy, especially the US economy, is expected to be less reliant on its members, who at present pump over a third of the world's oil and have around 80% of planet’s conventional crude reserves. Pay particular attention to the ‘conventional’ bit, yours truly will come back to it.

 

According to the exporters’ bloc, global demand would reach 92.9 million bpd by 2016, down over 1 million from its 2011 report. By 2035, it expects consumption to rise to 107.3 million bpd, over 2 million less than previous estimates. To put things into perspective, global demand in 2011 was 87.8 million bpd.

 

Partly, but not only, down to shale oil, non-OPEC output is expected to rise to 56.6 million bpd by 2016, up 4.2 million bpd from 2011, the report added. So OPEC expects demand for its crude to average 29.70 million bpd in 2016; much less than its current output (ex-Iraq).

 

"This downward revision, together with updated estimates of OPEC production capacity over the medium term, implies that OPEC crude oil spare capacity is expected to rise beyond 5 million bpd as early as 2013-14," OPEC said.

 

"Long term oil demand prospects have not only been affected by the medium term downward revisions, but by higher oil prices too…oil demand growth has a notable downside risk, especially in the first half of 2013. Much of this risk is attributed to not only the OECD, but also China and India," it added.

 

So on top of a medium term crude oil price assumption of US$100 per barrel (by its internal measure and OPEC basket of crudes, which usually follows Brent not WTI), the bloc forecasts the price to rise with inflation to US$120 by 2025 and US$155 by 2035.

 

Barely a week later, IEA Chief Economist Fatih Birol – who at this point in 2009 was discussing 'peak oil' – created ripples when he told a news conference in London that in his opinion the USA would overtake Russia as the biggest gas producer by a significant margin by 2015. Not only that, he told scribes here that by 2017, the USA would become the world's largest oil producer ahead of the Saudis and Russians. 

 

Realising the stirrings in the room, Birol added that he realised how “optimistic” the IEA forecasts were sounding given that the shale oil boom was a new phenomenon in relative terms.

 

"Light, tight oil resources are poorly known....If no new resources are discovered after 2020 and plus, if the prices are not as high as today, then we may see Saudi Arabia coming back and being the first producer again," he cautioned.

 

Earlier in the day, the IEA forecasted that US oil production would rise to 10 million bpd by 2015 and 11.1 million bpd in 2020 before slipping to 9.2 million bpd by 2035. It forecasted Saudi Arabia’s oil output to be 10.9 million bpd by 2015, 10.6 million bpd in 2020 but would rise to 12.3 million bpd by 2035.

 

That would see the world relying increasingly on OPEC after 2020 as, in addition to increases from Saudi Arabia, Iraq will account for 45% the growth in global oil production to 2035 and become the second-largest exporter, overtaking Russia.

 

The report also assumes a huge expansion in the Chinese economy, which the IEA said would overtake the USA in purchasing power parity soon after 2015 (and by 2020 using market exchange rates). It added that the share of coal in primary energy demand will fall only slightly by 2035. Fossil fuels in general will remain dominant in the global energy mix, supported by subsidies that, in 2011, rose by 30% to US$523 billion, due mainly to increases in the Middle East and North Africa.

 

Fresh from his re-election, President Obama promised to “rid America of foreign oil” in his victory speech prior to both the IEA and OPEC reports. An acknowledgement of the US shale bonanza by OPEC and a subsequent endorsement by IEA sent ‘crude’ cheers in US circles.

 

The US media, as expected, went into overdrive. One story – by ABC news – stood out in particular claiming to have stumbled on a shale oil find with more potential than all of OPEC. Not to mention, the environmentalists also took to the airwaves letting the great American public know about the dangers of fracking and how they shouldn’t lose sight of the environmental impact.

 

Rhetoric is fine, stats are fine and so are verbal jousts. However, one important question has bypassed several key commentators (bar some environmentalists). That being, just how many barrels are being used, to extract one fresh barrel? You bring that into the equation and unconventional prospection – including US and Canadian shale, Canadian oil sands and Brazil’s ultradeepwater exploration – all seem like expensive prepositions.

 

What’s more OPEC’s grip on conventional oil production, which is inherently cheaper than unconventional and is expected to remain so for sometime, suddenly sounds worthy of concern again.

 

Nonetheless “profound” changes are underway as both OPEC and IEA have acknowledged and those changes are very positive for US energy mix. Maybe, as The Economist noted in an editorial for its latest issue: “The biggest bonanza from all this new (US) energy would be if users paid the real cost of consuming oil and gas.”

 

What? Tax gasoline users more in the US of A? Keep dreaming sir! That’s all for the moment folks! Keep reading, keep it crude!

 

© Gaurav Sharma 2012. Oil prospection site, North Dakota, USA © Phil Schermeister / National Geographic.

OPEC 'holds' production at 30 mbpd as expected

OPEC decided to maintain production at 30 million barrels per day (bpd) in line with market expectations following the conclusion of its 161st meeting here in Vienna. Frustrated at unilateral increases in production by Saudi Arabia, the cartel merely noted in a statement that member countries “should adhere to the production ceiling.”

How on earth OPEC will monitor whether (or not) members flout their quota is open to question as individual quotas were shunned last year. All it can do is hope the Saudis, who are currently dovish on the price of crude, decide to cut back.

The Oilholic is reliably informed that five other OPEC members, excluding the usual suspect Iran, urged the Saudis to respect the ceiling and cut back production. At least three oil ministers left OPEC HQ whinging that members ought to respect the production ceiling and that an oil price below US$100 per barrel was unacceptable. Unsurprisingly they hailed from Iran, Algeria and Venezuela. Apparently even the UAE is unhappy but no one from their delegation openly criticised the Saudis at the end of the meeting.

On supply-demand permutations, OPEC noted that although world oil demand is projected to increase slightly during the year, this rise is expected to be mostly offset by the projected increase in non-OPEC supply.

In addition, comfortable OECD stock levels – which presently are below the historical average in terms of absolute volumes but well above the historical norm in terms of days of forward cover – indicate that there has been a “contra-seasonal stock” build in the first quarter 2012 and this overhang is predicted to continue throughout 2012 according to the cartel. Stocks outside the OECD region have also increased. Taking these developments into account, the second half of the year could see a further easing in fundamentals, despite seasonally-higher demand, it said.

OPEC also said it reviewed recent oil market developments, as well as the outlook for the second half of 2012, noting that the heightened price volatility witnessed earlier this year was a reflection of geopolitical tensions and increased levels of speculation in the commodities markets, rather than “solely a consequence of supply/demand fundamentals.”

Furthermore, the cartel observed heightened Eurozone sovereign debts concerns and the consequent weakening economic outlook, with its concomitant lower demand expectation, continue to mount. “These ongoing challenges to world economic recovery, coupled with the presence of ample supply of crude in the market, have led to the marked and steady fall in oil prices over the preceding two months,” it concluded.

Meanwhile no decision has been taken as yet on who would replace OPEC Secretary General Abdalla Salem al-Badri of Libya with four member countries having proposed candidates – old rivals Saudi Arabia and Iran along with perceived compromise candidates in Iraq and Ecuador. Finally, OPEC will convene for its 162nd meeting in Vienna on December 12, 2012. However, some delegates left suggesting that if economic fundamentals deteriorate further an extraordinary meeting maybe called before December.

On a lighter note, so predictable was the outcome of the 161st meeting, that the Oilholic’s blog post from December 14, 2011 (on the 160th meeting) notched up a quite a few clicks from ‘Googlers’ searching “OPEC outcome” and “30 million bpd” before one could biff out this post. As was the case on December 14, 2011, so it was on June 14, 2012 – the ‘official’ production quota remains capped at 30 million bpd.

This is the first instance since yours truly has been blogging or reporting from OPEC, when the price of the crude stuff has dipped more than 10% over a fiscal quarter and the cartel has not responded with a cut in its output. Given whats going on in the Eurozone, a cooling in India and China and a poor US recovery, Brent is unlikely to find a medium term US$100 price floor. If anyone thought there was a counterweight to the Saudis within OPEC, this outcome is your answer! That’s all for the moment folks. Keep reading, keep it 'crude'!

© Gaurav Sharma 2012. Photo: OPEC Logo, Vienna, Austria © Gaurav Sharma 2012.

The tussle for OPEC Secretary General’s post

The pre-meeting press scrum (which many scribes rather disingenuously call the ‘g*ng-b*ng’) is over and the Oilholic can tell you the OPEC quota is not the only thing the Hawks and Doves in the cartel are tussling over; it is the post of the new secretary general as well which is adding to the tension.

To being with, rivals Saudi Arabia and Iran have fielded a candidate of their own. The reason given by delegates from both camps is that apart from having the ‘ideal’ candidate, neither country has held the position in just over three decades. Describing the relations between Riyadh and Tehran as tense and rooted in suspicion would be understating the acrimony. Simply put, both hate each others’ guts based on past histories.

Furthermore, the Saudis have put their money where their mouth is by declaring that they will make up for the absence of Iranian crude if sanctions on the latter intensify. Empirical and anecdotal evidence as well as rising Saudi production proves that this is the case to a certain extent. Then again, time and again, irrespective of ‘formal’ OPEC announcements (the latest of which is expected here at 1700CET), Saudis have done whatever they’ve wanted.

The Oilholic is not alone in his belief that neither a Saudi nor an Iranian will occupy the post of Secretary General; but that a compromise candidate in the shape of Ecuador or Iraq would be found. Of the two, Iraq – a founding member of the cartel – would be a better choice.

Even though internal problems persist, its output is rising and it hopes to raise its profile at OPEC; something many here feel it lost in wake of conflict and under the international sanction-laden rule of Saddam Hussein.

Baghdad's man at the table is Thamir Ghadhban, who was was named adviser to Iraq’s interim oil minister before himself becoming the minister in 2004. Pitted against three other candidates, Ghadhban is not a frontrunner – but we’ve been told there isn’t one among the other three either. Since a unanimous deciscion is requirement for the appointment, making predictions over who would win would be tricky.

Since OPEC was former, only one Iraqi has held the office of secretary general - Abdul Rahman al-Bazzaz (1964-65). Another Iraqi - Fadhil al-Chalabi was only an ‘acting’ secretary general from 1983-88.

On a closing note, well there is one more footnote to all of this. While Iraq is a member of OPEC; it does not have a stated individual oil production quota which was suspended in wake of hostilities and later to facilitate a recovery. Negotiations are likely to take place once Iraqi production increases to at least 4 million bpd; this would be by 2015 based on current industry projections.

It’s hectic here, and apart from giving soundbites to the usual suspects, it was a pleasure speaking to Middle Eastern broadcasters, especially MBC. That’s all for the moment folks as we prepare to say goodbye to outgoing Secretary General Abdalla Salem El-Badri! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: OPEC HQ, Vienna, Austria © Gaurav Sharma 2011.

OPEC hawks are back in town (too)!

So the crude games have begun, the camera crews have begun arriving and the Saudis have begun throwing down the gauntlet by first suggesting that OPEC actually raise its output and then indicating that they might well be happy with the current production cap at 30 million bpd. However, hawks demanding a cut in production are also in Vienna in full flow.

With benchmark crude futures dipping below US$100, the Venezuelans say they are “concerned” about fellow members violating the agreed production ceiling. In fact, Venezuelan President Hugo Chavez expressed his sentiments directly over the air-waves rather than leave it to his trusted minister at the OPEC table - Rafael Ramirez.

For his part, on arrival in Vienna, Ramirez said, “We are going to make a very strong call in the meeting that the countries that are over-producing cut. We think we need to keep the ceiling on production of 30 million that was agreed at our last meeting in December."

Iraq's Abdul Kareem Luaibi, told a media scrum that a “surplus in OPEC supplies” exists which has led to “this severe decline in prices in a very short time span.” Grumblings also appear to be coming from the Algerian camp, while the Kuwaitis described the market conditions as “strange.”

Speaking to reporters on Monday, Kuwait’s Oil Minister Hani Hussein said, “Some of OPEC members are concerned about the prices and what’s happening…about what direction prices are taking and production.”

However, Hussein refused to be drawn into a discussion over a proposed OPEC production cut by the hawks.

Meanwhile, one cartel member with most to fear from a dip in the crude price – Iran – has also unsurprisingly called for an adherence to the OPEC production quota. Stunted by US and EU sanctions, it has seen its production drop to 3 million bpd - the lowest in eight quarters. Much to its chagrin, regional geopolitical rival Saudi Arabia has lifted its global supply to make-up the absence of Iranian crude in certain global markets.

At the cartel’s last meeting in December, OPEC members agreed to hold ‘official’ output at 30 million bpd. Yet, extra unofficial production came from Saudi Arabia, Iraq and Kuwait. Say what you will, the Oilholic is firmly in the camp that a reintroduction of individual OPEC quotas to help the cartel control its members’ production is highly unlikely. That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Broadcast media assembly point outside OPEC HQ, Vienna, Austria © Gaurav Sharma 2011.

First vibes from OPEC, monthly data & Mr. Al-Naimi

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.

UK & Norway: A ‘crudely’ special relationship

Unconnected to the current systemic financial malaise in Europe, a recent visit to Oslo by British Prime Minister David Cameron for a meeting with his Norwegian counterpart Jens Stoltenberg went largely unnoticed. However, its ‘crude’ significance cannot be understated and Cameron’s visit was the first by a British Prime Minister since Margaret Thatcher’s in 1986.

Beaming before the cameras, Stoltenberg and Cameron announced an "energy partnership" encompassing oil, gas and renewable energy production. As production from established wells has peaked in the Norwegian and British sectors of the North Sea, a lot has changed since 1986. The two principal proponents of exploration in the area are now prospecting in hostile climes of the hitherto unexplored far North – beyond Shetland Islands and in the Barents Sea.

Reading between PR lines, the crux of what emerged from Oslo last week is that both governments want to make it easier for firms to raise money for projects and to develop new technologies bearing potential benefits in terms of energy security. That Cameron is the first British PM to visit Norway in decades also comes as no surprise in wake of media reports that the Norwegian sector of the North Sea is witnessing a second renaissance. So of the growing amount of oil the UK imports since its own production peaked in 1999 – Norway accounts for over 60% of it. The percentage for British gas imports from Norway is nearly the same.

"I hope that my visit to Oslo will help secure affordable energy supplies for decades to come and enhance investment between our two countries. This will mean more collaboration on affordable long-term gas supply, more reciprocal investment in oil, gas and renewable energies and more commercial deals creating thousands of new jobs and adding billions to our economies," Cameron said.

For their part the Norwegians, who export over five times as much energy as they use domestically, told their guest that they see the UK as a reliable energy partner. We hear you sir(s)!

Meanwhile, UK Office for National Statistics’ (ONS) latest production data released this morning shows that extractive industries output fell by 15% on an annualised basis in April with oil & gas production accounting for a sizeable chunk of the decline.

A further break-up of data suggests oil & gas production came in 18.2% lower in April 2012 when compared with the recorded data for April 2011. Statisticians say production would have been higher in April had it not been for the shutdown of Total’s Elgin platform in the North Sea because of a gas leak.

Elsewhere, farcical scenes ensued at the country’s Manchester airport where the airport authority ran out of aviation fuel causing delays and flight cancellations for hours before supplies were restored. Everyone in the UK is asking the same question – how on earth could this happen? Here’s the BBC’s attempt to answer it.

Finally the Oilholic has found time and information to be in a position to re-examine the feisty tussle for Cove Energy. After Shell’s rather mundane attempt to match Thai company PTTEP’s offer for Cove, the Thais upped the stakes late last month with a £1.22 billion takeover offer for the Mozambique-focused oil & gas offshore company.

PTTEP’s 240 pence/share offer improves upon its last offer of 220 pence or £1.12 billion in valuation which Shell had matched to nods of approval from Cove’s board and the Government of Mozambique. The tussle has been going on since February when Shell first came up with a 195 pence/share offer which PTTEP then bettered.

Yours truly believes Cove’s recommendation to shareholders in favour of PTTEP’s latest offer does not guarantee that the tussle is over. After all, Cove recommended Shell’s last offer too which even had a break clause attached. Chris Searle, corporate finance partner at accountants BDO, feels the tussle for control may end up with someone overpaying.

“I’m not surprised that PTTEP have come back in for Cove since the latter’s gas assets are so attractive. Of course the danger is that we now get into a really competitive auction that in the end will lead to one of the bidders overpaying. It will be interesting to see how far this goes and who blinks first,” he concludes.

Cove’s main asset is an 8.5% stake in the Rovuma Offshore Area 1 off the coast of Mozambique where Anadarko projects recoverable reserves of 30 tcf of natural gas. Someone just might end-up overpaying.

On the pricing front, instead of the Spanish rescue calming the markets, a fresh round of volatility has taken hold. One colleague in the City wonders whether it had actually ever left as confusion prevails over what messages to take from the new development. Instead of the positivity lasting, Spain's benchmark 10-year bond yields rose to 6.65% and Italy's 10-year bond yield rose to 6.19%, not seen since May and January respectively.

Last time yours truly checked, Brent forward month futures contract was resisting US$97 while WTI was resisting US$82. That’s all for the moment folks! The Oilholic is off to Vienna for the 161st OPEC meeting of ministers. More from Austria soon; keep reading, keep it ‘crude’!

© Gaurav Sharma 2012. Photo: Oil Rig in the North Sea © Royal Dutch Shell.

Speaking @ OPEC & WPC plus Dec's trading lows

It’s been a hectic few weeks attending the OPEC conference in Vienna and the 20th World Petroleum Congress in Doha, but the Oilholic is now happily back in London town for a calm Christmas. In fact, a more than passive interest in the festive period’s crude trading lows is all what you will get for the next fortnight unless there is a geopolitical mishap. However, before we discuss crude pricing, this humble blogger had the wonderful experience of doing a commentary hit for an OPEC broadcast and moderating a Baker & McKenzie seminar at the WPC.

Starting with OPEC, it was a pleasure ditching pricing and quotas for once in Vienna and discussing the infrastructure investment plans of its 12 member nations in OPEC webcast on December 14th. The cartel has announced US$300 billion of upstream infrastructure investment between 2011 and 2015.

The market is right in believing that Kuwait and Qatar would lead the new build and give project financiers considerable joy. However, intel gathered at the WPC suggests the Algerians could be the surprise package. (To watch the video click here and scroll down to the seventh video on the 160th OPEC conference menu)

This ties-in nicely to the Baker & McKenzie seminar at the WPC on December 7th where the main subject under the microscope was investment opportunities for NOCs.

Six legal professionals attached to Baker's myriad global practices, including familiar names from their UK office, offered the audience insight on just about everything from sources of funding to a reconciliation of different drivers for NOCs and IOCs in partnerships.

Once the panel discussion was over, the Baker partners were kind enough to allow the Oilholic to open the floor for some lively questioning from the audience. While the Oilholic did most of the probing and Baker professionals did most of the answering, the true credit for putting the seminar and its research together goes to Baker’s Emily Colatino and Lizzy Lozano who also clicked photos of the proceedings.

Now from crude sound-bites to crude market chatter post-OPEC, as the end of last week saw a major sell off. Despite the price of crude oil staging a minor recovery in Monday’s intraday trading; both benchmarks were down by over 4 per cent on a week over week, five-day cycle basis on Tuesday. Since the festive period is upon us, trading volumes for the forward month futures contracts will be at the usual seasonal low over the Christmas holidays. Furthermore, the OPEC meeting in Vienna failed to provide any meaningful upward impetus to the crude price level, which like all traded commodities is witnessing a bearish trend courtesy the Eurozone crisis.

Sucden Financial Research analyst Myrto Sokou notes that investors remained very cautious towards the end of last week and were prompted towards some profit taking to lock in recent gains as WTI crude was sliding down toward US$92 per barrel level.

“After market close on Friday, Moody’s downgraded Belgium by two notches to Aa3, as liabilities associated with the Dexia bailout and increased Eurozone risks were cited as key factors. In addition, market rumours on Friday of a France downgrade by S&P were not followed up, though the agency did have server problems during the day. Suspicion is now that they will wait until the New Year to conclude review on Eurozone’s second largest economy,” Sokou said in a note to clients.

Additionally, crude prices are likely to trade sideways with potential for some correction higher, supported by a rebound in the global equity markets. “However, should the US dollar strengthen further we expect some pressure in the oil market that looks fairly vulnerable at the moment,” Sokou concludes.

Away from pricing projections, the Reuters news agency reports that Libya has awarded crude oil supply contracts in 2012 to Glencore, Gunvor, Trafigura and Vitol. Of these Vitol helped in selling rebel-held crude during the civil war as the Oilholic noted in June.

On to corporate matters and Fitch Ratings has upgraded three Indonesian oil & gas utilities PT Pertamina (Persero) (Pertamina), PT Perusahaan Listrik Negara (Persero) (PLN) and PT Perusahaan Gas Negara Tbk (PGN) to 'BBB-' following the upgrade to Indonesia's Long-Term Foreign- and-Local-Currency Issuer Default Ratings (IDRs) to 'BBB-' from 'BB+'. The outlooks on all three entities are Stable, agency said in a note on December 15th.

Meanwhile, a Petrobras communiqué suggests that this December, the combined daily output of the Brazilian major and its partners exceeded 200,000 barrels of oil equivalent per day (boe/day) in the promising Santos Basin. The company said that on December 6, two days after operations began at well RJS-686, which is connected to platform FPSO Cidade de Angra dos Reis (the Lula Pilot Project), the total output operated by Petrobras at the Santos Basin reached 205,700 boe/day.

This includes 144,100 barrels of oil and condensate, in addition to 9.8 million cubic meters of natural gas (equivalent to an output of 61,600 boe), of which 8.5 million cubic meters were delivered to the Monteiro Lobato Gas Treatment Unit (UTGCA), in Caraguatatuba, and 1.3 million cubic meters to the Presidente Bernardes Refinery (RPBC) Natural Gas Unit, in Cubatão, both in the state of São Paulo.

Finally, ratings agency Moody's notes a potential sizable lawsuit against Chevron Corporation in Brazil could have a negative impact on the company, but it is too early to judge the full extent of any future liability arising from the lawsuit.

Recent news reports indicate that a federal prosecutor in the state of Rio de Janeiro is seeking BRL20 billion (US$10.78 billion) in damages from Chevron and Transocean Ltd. for the offshore oil leak last month. The Oilholic thinks Transocean’s position is more troublesome given it’s a party to the legal fallout from the Macondo incident.

That’s all for the moment folks – a crude year-ender to follow in early January! In the interim, have a Happy Christmas! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2011. Photo 1: Gaurav Sharma on OPEC's 160th meeting live webcast from Vienna, Austria on Dec 14, 2011 © OPEC Secretariat. Photo 2 & 3: The Oilholic at Baker & McKenzie seminar on investment opportunities for NOCs at the 20th World Petroleum Congress in Doha, Qatar on Dec 7, 2011 © Lizzy Lozano, Baker & McKenzie.

OPEC 'maintains' production at 30 million bpd

In line with market expectations and persistent rumours heard here all morning in Vienna, OPEC has agreed to officially maintain its crude production quota at 30 million barrels per day (bpd) at its 160th meeting, thereby legitimising the increase the Saudis triggered after the acrimony of the last meeting in June.

The OPEC Secretary General Abdalla Salem El-Badri said the heightened price volatility witnessed during the course of 2011 is predominantly a reflection of increased levels of speculation in the commodities markets, exacerbated by geopolitical tensions, rather than a result of supply/demand fundamentals.

Ministers also expressed concern regarding the downside risks facing the global economy including the Euro-zone crisis, persistently high unemployment in the advanced economies, inflation risk in emerging markets and planned austerity measures in OECD economies.

“All these factors are likely to contribute to lower economic growth in the coming year. Although world oil demand is forecast to increase slightly during the year 2012, this rise is expected to be partially offset by a projected increase in non-OPEC supply,” El-Badri noted.

Hence, OPEC decided to maintain the production level of 30 million bpd curiously “including production from Libya, now and in the future”. The quota would be reviewed in six months and does not include Iraqi supply. The cartel also agreed that its members would, if necessary, take steps including voluntary downward adjustments of output to ensure market balance and reasonable price levels.

The last bit stirred up the scribes especially as El-Badri, himself a Libyan, noted that his country’s production will be back to 1 million bpd “soon” followed by 1.3 million bpd end-Q1 2012, and 1.6 million at end of Q2 2010; the last figure being the pre-war level.

Despite persistent questioning, the Secretary General insisted that Libyan production will be accommodated and 30 million bpd is what all members would be asked to adhere to formally. He added that the individual quotas would be reset when Libyan production is back to pre-war levels.

El-Badri also described the "meeting as amicable, successful and fruitful" and that OPEC was not in the business of defending any sort of crude price. “We always have and will leave it to market mechanisms,” he concluded.

Iran's Rostem Ghasemi said the current OPEC ceiling was suitable for consumers and producers. “We and the Saudis spoke in one voice.” He also said his country was "cool" on possible oil export embargoes but neither had any news nor any inclination of embargoes being imposed against his country yet. OPEC next meets in Vienna on June 14th, 2012.

Following OPEC’s move, the Oilholic turned the floor over to some friends in the analyst community. Jason Schenker, President and Chief Economist of Prestige Economics and a veteran at these events, believes OPEC is addressing a key question of concern to its members with the stated ceiling.

“That question is how to address the deceleration of global growth and pit that against rising supply. And what OPEC is doing is - not only leaving the production quota essentially unchanged but also holding it at that unchanged level,” Schenker said.

“When the Libyan production does indeed come onstream meaningfully or to pre-war levels between now and Q2 or Q3 of 2012, smart money would be on an offsetting taking place via a possible cut from Saudi Arabia,” he concluded.

Myrto Sokou, analyst at Sucden Financial Research, noted that an increase (or rather the acknowledgement of an increase) in the OPEC production limit after three years might add further downward pressure to the crude price for the short-term with a potential for some correction lower in crude oil prices.

“On top of this, the uncertain situation in the Eurozone continues to dominate the markets, weighting heavily on most equity and commodity prices and limiting risk appetite,” he said. And on that note, it is goodbye from the OPEC HQ. Keep reading, keep it ‘crude’!

© Gaurav Sharma 2011. Photo: OPEC's 160th meeting concludes in Vienna, Austria - seated (R to L) OPEC Secretary General Abdalla Salem El-Badri and President Rostem Ghasemi © Gaurav Sharma 2011.

Sunset in Doha: Off from WPC to OPEC!

The 20th WPC ended yesterday in Doha and it was an amazing experience. Following the opening ceremony on Dec 4th, it was another four days of intense debates, discussions, meeting and greeting and the Oilholic has been wiser for it.

Everything from peak oil to unconventional projects was under the microscope, a deal announced here and CEO speaking there, one minister throwing-up a policy initiative to another presenting a white paper and so it went. Every oil major – NOC or IOC – offered up some newsy or debatable material and the Oilholic put them across from his perspective without attempting to be everywhere at all times and being all things to all ‘crude’ men as it was near impossible.

This blogger was also truly delighted to have moderated a Baker & McKenzie event at 20th WPC which included a seminar on NOCs, where they should invest, what they should know and where the opportunities lie. Over the course of five days, several representatives from a list of companies and firms too long to list engaged in constructive discussions – some on and some off record. Furthermore, delegates from Milwaukee to the Faroe Islands got to hear about this blog and offer their insight and suggestions which are deeply appreciated.

The Qataris aside, officials from Angola, Algeria, Brazil, Canada, China, India, Kuwait, Nigeria, Netherlands, Norway, USA, Russia, Venezuela and last but not the least the UK spared their invaluable time to discuss crude matters with the Oilholic, however briefly in some cases. One oil minister even joked that if he had time – he’d be a blogger himself!

All good things come to an end and now its time to say goodbye to Doha and head back to London, albeit briefly before the 160th meeting of OPEC ministers at the cartel’s HQ in Vienna on December 14th. There were fireworks last time between the Saudis and Iranians at OPEC HQ; let’s see what happens this time.

Ahead of the OPEC meeting, Secretary General, Abdalla Salem El-Badri took a timely swipe here in Doha at speculators.

On the penultimate day of the congress he told delegates, “Speculative activities remain an issue in the current market. This can be viewed in the respective sizes of the paper and physical markets. Since 2005, there has been a sharp increase in the number of open interest futures and options contracts. At times it has surpassed three million contracts per day, equivalent to 3 billion barrels per day. This is 35 times the size of actual world oil demand.”

El-Badri also noted that between 2009 and 2011, data has shown an almost one-to-one correlation between WTI prices and the speculative activity of the net long positions of money managers. “This is in terms of both volume and value. Let me stress, excessive speculation is detrimental to both producers and consumers and can cause prices to detach from fundamentals. It is essential to avoid distorting the essential price discovery function of the market,” he added.

Meanwhile ahead of the OPEC meeting, ratings agency Moody's has raised its 2012 and 2013 price assumptions for both WTI and Brent benchmarks. It now assumes a price of US$90 per barrel WTI crude in 2012, and US$85 per barrel in 2013, dropping to US$80 per barrel in the medium term, which falls beyond 2013. The ratings agency had previously assumed a price of US$80 per barrel for WTI in 2012 and beyond.

On Brent crude, Moody's assumes a price of US$95 in 2012, US$90 in 2013 and US$80 in the medium term - higher than the previous assumption of US$90 in 2012 and US$80 thereafter. Moody's continues to use US$60 per barrel as a stress case price for both WTI and Brent.

The move reflects the rating agency's expectations that oil prices will remain robust over the next two years, while natural gas will remain significantly oversupplied. Price assumptions represent baseline approximations – not forecasts – that Moody's uses to evaluate risk when analysing credit conditions within the oil and gas industry. And on that note, its goodbye from Doha; keep reading, keep it ‘crude’!

© Gaurav Sharma 2011. Photo: Outside the QNCC at the 20th Petroleum Congress, Doha © Gaurav Sharma 2011.

OPEC, Libya, Vitol & the “No winners” brigade

Now that the meeting is all over, it is worth noting that the ‘acting’ Iranian oil minister – Mohammad Aliabadi – was not the only one new to the job. It would appear that half of his peers at the OPEC meeting were in fact new to the job as well but Alibadi had to carry the tag of “Conference President”. One question on everybody’s lips was who spoke for Libya at this OPEC meeting.

The man from Tripoli was the right honourable Omran Abukraa, Libya's OPEC delegation leader. His appearance follows the defection last week of a familiar face in these parts – that of Libyan oil minister Shukri Ghanem. The Oilholic is reliably informed that no one was representing the Libyan rebels in a meaningful way here. This, as someone from the Nigerian delegation told the Oilholic, removes a “point of tension.”

In the run up to this meeting, news from Tripoli was that Col. Gaddafi was controlling the oil assets that he could and was destroying those that he could not in order to prevent them from both falling into rebel hands or being used as a revenue generator. Once rebels took control of some of the country’s oil assets, troops loyal to Gaddafi set about knocking out the infrastructure.

Coastal road between Brega and Ras Lanuf, sites of the country’s two biggest refineries was taken out. Then the gas network linking up to rebel controlled areas fell to below 50% capacity. This was followed by Sarir and Mislah oilfields, south of Benghazi being hit by Gaddafi’s troops. While estimates vary, all this has collectively deprived the rebels access to up to 350,000 barrels of oil which they could have sold in open markets.

Now until these facilities can be repaired, the rebels cannot really export much even though the Qataris have volunteered to help them market the oil. Their only success so far, according to sources has been a sale facilitated by Vitol, a Swiss trading house, to the tune of just over one million barrels worth US$118.75 million at the current rate. Additionally, Gaddafi is not in ‘crude’ health either.

A source here suggests Libyan production is in the region of 215,000 b/d but output has ceased as admitted this afternoon by the OPEC Secretary General Abdalla Salem el-Badri. Given international sanctions, the buyers, at least on the open market, are hesitant. Additionally, Libyan consumers are facing shortages everywhere including the capital Tripoli where a litre of petrol is costing up to 6.5 Libyan dinars; about US$5.13 at the current rate. The Oilholic is unable to ascertain how much a litre costs in rebel held areas although it is thought to be a lower rate than Tripoli.

News from behind closed doors is that Col. Gaddafi’s representative did not find himself clashing with the Qatari delegation, who have helped the rebels to their market oil. However, there was an almighty collective clash between the OPEC member nations in which Gaddafi’s man did take the opposing view of what the market felt was right. This understandably overshadowed everything else. On that note its goodbye and goodnight from Vienna - thanks for reading.

© Gaurav Sharma 2011. Photo: Oil pipeline © Cairn Energy, India

OPEC’s 'problem' and Dr. Chalabi’s book

The decision or rather non-decision of not raising the OPEC production quota taken earlier here in Vienna is as damaging for OPEC as it is problematic. A cartel is supposed to show solidarity, but internal sparring awaited the world’s press. The meeting even concluded without a formal production decision or even a communiqué.

It is clear now that those members in favour of a rise in production quota were Saudi Arabia, Kuwait, Qatar and UAE while those against were Algeria, Libya (Gaddafi’s lot), Angola, Venezuela, Iran and Iraq. However, majority of the sparring was between the Saudis on one side and the Iranians and Venezuelans on the other. In the end, it was not only messy but made the cartel look increasingly dysfunctional and an archaic union heading slowly towards geopolitical insignificance. However, what appears on the face of it is not so straightforward.

To followers of crude matters, it is becoming increasingly clear that as in the past, the Saudis will act to raise their production unilaterally, more so because they left Vienna irked by what they saw as Iranian and Venezuelan belligerence. Furthermore, the cartel’s own spare capacity of around 4 million b/d is squarely in the hands of Saudi Arabia, Kuwait and UAE. Of these, the Saudis pumped an extra 200,000 b/d last month. Most analysts expect this to be mirrored in their June output and it would imply that the Saudis would be producing at least 1 m b/d over the now largely theoretic OPEC binding quota of 24.85 million b/d.

Almost 41% of the global crude oil output is in the hands of OPEC. If within this close-knit group, there is sparring between those with spare capacity and those without in full view of the world’s press then the cartel’s central purpose takes a hammering. Mighty worried about the negative impact of high prices on GDP growth of their potential export markets and by default on the growth of crude oil demand, the Saudis appeared to the Oilholic to be firm believers that it was in their interest to increase quotas and actual production – so they will raise their own.

Yet I do not totally agree with market conjecture that the “end of OPEC is nigh”. Neither does veteran market commentator Jason Schenker of Prestige Economics. He notes: “Some market mavens have heralded this event as 'The end of OPEC' or 'The beginning of the end of OPEC', we do not believe it. Although no formal production decision was reached, there are precedents for what has been going on with the organisation’s production. After all, the group quota was suspended at the peak of the last business cycle in 2008.”

“Furthermore, and more recently, the individual member county quotas were suspended last October. On a more practical note, group cohesion for affecting production and crude oil prices is less critical when the price of crude is over US$100 per barrel and the global economy is rising, along with oil demand. The division within OPEC is likely to heal, and we are confident that group cohesion will be seen again when prices fall,” he concludes.

Additionally with half of those at the table being newcomers to the job, the situation in Libya and their representative, and an Iranian ‘acting’ oil minister with no experience of OPEC negotiations or of ‘crude’ affairs (he was previously the country’s minister for sport) all combined to complicate the situation as well as infuriate the Saudis. This situation should not arise at the next meeting.

Now if all this has left you yearning for a slice of OPEC’s history – whether you are an observer, derider or admirer of the cartel – there is no better place to start than Dr. Fadhil Chalabi’s latest book Oil policies, oil myths: Observations of an OPEC insider.

If there is any such thing as a ringside view of the wheeling and dealing inside OPEC then Dr. Chalabi more than anyone else had that view. The Oilholic found his book, which serves as the author’s memoir of his time at OPEC as well as charts the history of OPEC and its policies, to be a thoroughly good read.

He was the deputy secretary general of OPEC from 1979-89 and its acting secretary general from 1983-88. The book is, in more ways than one, a coupling of an account of his time at OPEC and an objective analysis of what has transpired in the energy business over last four decades. Looking through either prism - both the book's "memoir aspect" as well as the author's charting of the history of OPEC and its policies, it comes across as a thoroughly good read.

The book is just over 300 pages split by 16 chapters over which the author offers his thoughts in some detail about why OPEC is relevant. He also sets about exploding a few myths about the cartel, what has shaped it and how it has impacted the wider industry as well as the global economy.

To substantiate his case, he offers facts, figures, graphics, a glossary and a noteworthy and useful chronology of key events affecting the oil industry. The world has come a long way from the days when the “Seven Sisters” simply posted the oil prices in Platt’s Oilgram news bulletins. The era of price volatility-free cheap oil ended with the price shock of 1973 in the author’s opinion, before which the world had scarcely heard of OPEC.

Gaddafi’s Libya, Saddam’s Iraq and Nasser’s Egypt are all there but the Oilholic found Chapter 7 narrating the episode when Carlos the Jackal struck OPEC (in 1975) to be riveting, for among the hostages taken by the Jackal was the author himself. The book understandably has many fans at OPEC and officials from member nations as seen in its endorsements. However, what makes it enjoyable is that it is no glorification or advert of the cartel.

Rather it is an objective analysis of how crude oil has shaped the diplomatic relations of OPEC members with the oil-consuming nations globally and by default how an oil exporting cartel’s presence triggered ancillary developments in the crude business. This includes changing the investment perspective of IOCs who began facing dominant NOCs. In summation, if you would like to probe the supposed opacity of OPEC, Dr. Chalabi’s book would be a good starting point.

© Gaurav Sharma 2011. Photo 1: OPEC Flag © Gaurav Sharma 2011, Photo 2: Cover: Oil Policies Oil Myths © I.B. Tauris Publishers. Book available here.

Buzz at Central Bank of Oil Before 1600 CET

Ahead of the OPEC decision, prices for the forward month ICE Brent and NYMEX WTI futures contracts have fallen by US$2-3 on average over two weeks if the last fortnight is taken into consideration. That is largely down to the fact that traders have begun to factor in a possible increase in OPEC crude production quotas in the run up to the meeting here in Vienna today.

For the purposes of a price check, at 11:00am CET, ICE Brent is trading at US$116.26 down 0.5% or 16 cents, while WTI is down 99 cents or 1% at US$98.46. Additionally, the OPEC basket of twelve crudes stood at US$110.66 on Tuesday, compared with US$110.99 the previous day according to OPEC Secretariat calculations this morning.

Mike Wittner of Société Générale notes that if an increase in OPEC quota is made from a starting point of actual production, rather than the previous quota, it is that much more real, that much more serious, and potentially that much more bearish, at least in the short term.

“In contrast, if OPEC were to increase quotas by 1.5 million b/d, but versus previous quotas and not actual production, all they would be doing would be legitimising recent/current overproduction versus the old quota,” he adds.

Most analysts including Wittner and those present here believe a physical increase would be coming our way. Speaking of analysts, it is always a pleasure meeting Jason Schenker, President & Chief Economist of Prestige Economics at these OPEC meetings. He’s to be credited for describing OPEC as the Central Bank of Oil. The Oilholic heartily agrees and could not have put it better. Schenker believes OPEC is looking at the medium term picture and not just the next few months.

“As anticipated if there is a production hike today, the thinking at the “Central Bank of Oil” would be that it could carry them across to the end of Q4 2011 perhaps without facing or acting upon further calls for alterations of production quotas,” he says.

On a somewhat 'crude' but unrelated footnote, hearing about my recent visit to Alberta, Canada, Jason agrees there are a whole lot of crude opportunities for Canadians to be excited about. It would not be easy and it is certainly not cheap. But then cheap oil has long gone – this not so cheap resource is in a safe neutral country. Furthermore, one must never say never, but Canadians are not exactly queuing up to join OPEC any time soon (or ever).

Finally on a totally unrelated footnote, one can see the “Made in UK” label at OPEC HQ – it’s the paper cups near the water dispenser - not something extracted from the North Sea.

© Gaurav Sharma 2011. Photo: Oil well in Oman © Royal Dutch Shell

Arriving at the not so ‘Ordinary’ OPEC meeting

The Oilholic probably has to go back to Q1 2008 when an OPEC meeting last generated as much interest as the soon to be held 159th Ordinary meeting of the cartel here in Vienna. Interest of this magnitude usually gains traction when the cartel contemplates an alteration of production quotas. Initial signals are that come 1600 CET tomorrow, we could see a rise in the OPEC member nations’ quotas by 0.5 to 1.5 million b/d.

Such talk has intensified in the three weeks leading up to the meeting. OPEC’s May crude oil production report notes that the cartel’s total crude output was 28.99 million b/d. If Iraq, which is not subject to OPEC quotas at present, is excluded, then the production came in at 26.33 million b/d, or 1.5 million b/d higher than the quota of 24.8 million b/d as set in Q4 2008.

This begs the question, what would the increase be like in real terms – i.e. would it be an increase in paper targets (to which methinks not a lot of attention would or should be paid by the markets) or would it be an increase over the already existing, but not officially acknowledged physical production levels. If it is the latter, then that would be something and Société Générale's Mike Wittner reckons it would be a physical increment rather than a paper one.

Furthermore, in a note to clients, Wittner observes: “Before analysing what OPEC is thinking about, why it will probably increase quotas, and what the dangers are of doing so, it is very important to note the latest signal regarding the meeting. Early Monday evening (EST), it was reported that the Saudi-owned al-Hayat newspaper, based in London, quoted an unnamed source as saying that if OPEC decides to lift its output by more than 1 million b/d, Saudi Arabia’s production will reach about 10 million b/d during the summer period, when its domestic demand increases. This compares to around 8.9 - 9.0 million b/d in May, according to preliminary wire service estimates, with an increase of 0.2 - 0.3 million b/d expected in June, according to various sources."

The initial feelers here seem to be following the norm. The Saudis for instance, according to various media reports, would increase production anyway even if an increase is not announced. Approach of the others is more nuanced while some would suggest there are bigger factors at play rather than a straight cut decision on production.

Earlier today, following a meeting at 1600 CET, a ministerial monitoring sub-committee comprising of ministers from Algeria, Kuwait and Nigeria overseen by the OPEC secretariat proposed a 1 million b/d increment to the existing quotas. This could be a harbinger of what may follow tomorrow. However, few here expect anything other than stiff resistance to an increase in quotas by Iran and Venezuela.

Both countries have provided interesting sideshows. Iran's President Mahmoud Ahmadinejad sacked his oil minister and seized control of his ministry ahead of the meeting. He then appointed his close ally Mohammad Aliabadi as caretaker oil minister after parliament and Iran's constitutional watchdog said the president had no right to head the ministry.

Oilholic regrets that he knows little about the right honourable Aliabadi who has precious little experience of oily matters. Guess being greasily close to Ahmadinejad is a resume builder in that part of the world. Additionally, Venezuela is to complain about US sanctions on PDVSA.

Meanwhile, crude oil futures rose slightly either side of the pond following concerns that OPEC’s spare capacity will tighten pending on what happens tomorrow. OPEC had 5.94 million b/d in spare capacity in May, down 2.7 per cent from April, based on Bloomberg estimates. Spare capacity was 6.31 million barrels a day in March, the highest level since May 2009.

The official line from OPEC as of this evening is – “We’ll pump more if needs be.” But do we? Tracking arrivals of OPEC ministers in Austria one by one since 09:00 CET not one has said much about what may happen on this occasion. Based on past experience that is always a sign that something will happen.

© Gaurav Sharma 2011. Photo: Empty OPEC Press conference table © Gaurav Sharma 2011

Third Time Lucky for OMV?

OMV’s takeover of Turkey’s Petrol Ofisi A.S. should be applauded for the Austrian company’s sheer persistence in its attempts to acquire strategic assets, if nothing else. It has a mixed record at best when it comes to takeover attempts, as I was joking with my old colleague CNBC’s Steve Sedgwick at the OPEC summit in Vienna ten days ago.

OMV was successful in acquiring Romania’s Petrom in 2004 but failed spectacularly in its takeover attempt of Hungary’s MOL which was swiftly and successful rejected by the Hungarians in June 2007. As I had just arrived in Vienna from Budapest, Steve said, as only Steve can, that I’d been "MOL"-ing over OMV’s fortunes in the wrong city. The failed bid for MOL aside, OMV also tried and failed to acquire utility Verbund.

In a statement on Friday, OMV said the Turkish acquisition, slated at €1 billion ($1.4 billion) is a further step in its growth strategy and aims at "positioning Turkey as a third hub, besides Austria and Romania."

OMV would now own 95.75% of the Turkish company after buying out Dogan Holding's stake of 54.17% stake in it; formalities are set to be completed within the next three months. The companies have also agreed to pay a dividend to Petrol Ofisi shareholders prior to that.

Ahead of the announcement, ratings agency Standard & Poor’s noted that Petrol Ofisi's credit profile would benefit were OMV to become its majority owner. It placed the Turkish company’s 'B+' long-term corporate credit ratings on CreditWatch with positive implications.

Per Karlsson, credit analyst at Standard & Poor's, said, "The positive implications of the CreditWatch placement reflect our view that should such a transaction materialize we are likely to raise the ratings on Petrol Ofisi by one notch or more."

As for takeover attempts – looks like OMV has been third time lucky!

© Gaurav Sharma 2010. Photo: Photo: OMV Petrol Station, Austria © OMV

Final Thoughts From the 157th OPEC Conference

Alongside Thursday’s decision by OPEC to hold its official oil production target at 24.84 million barrels a day, i.e. the level set following a production cut in December 2008; the cartel also noted that global oil demand had dipped in two concurrent years; a situation unseen since the 1980s.

It bemoaned the “rollercoaster” ride in crude prices, particularly between Q4 2007 and Q1 2009. As usual speculators were blamed, with OPEC noting that oil had increasingly emerged as an asset class, with “excessive speculation adding appreciably to market volatility.”

It also appears that the cartel is irked by renewable energy initiatives or at least the talk of renewable energy. OPEC believes that the ambiguity of a number of energy and environmental policies, often with “evidently over-ambitious targets”, particularly in developed regions, has led to uncertainty in regards to future oil demand requirements.

The 158th OPEC conference would be held in Quito, Ecuador on December 11th, where the cartel hopes to publish its Long Term Strategy, as discussed by its 12 member nations here in Vienna on Thursday. Following that, OPEC would meet again in June 2011 in Vienna.

In a surprise move, it was confirmed Iran would assume OPEC presidency in January 2011; it last held the post in 1975. And last but not the least, there is finally a lady at the OPEC table – Nigeria's petroleum minister - Diezani Kogbeni Alison-Madueke, who having been a Shell executive took a certain amount of delight in telling the assembled press scrum that she had been in male dominated industries before and pretty much held her own!

To summarise, OPEC – in line with prevailing sentiment – noted that the market remains well supplied and given the downside risk to the global economy, did not feel the need to raise production.

That’s it from Vienna – time to say Auf Wiedersehen!

© Gaurav Sharma 2010. Photo: Nigeria's petroleum minister Diezani Kogbeni Alison-Madueke (Centre), © Gaurav Sharma, OPEC 157th Conference, Vienna, Oct 14, 2010

Is Big Oil Really "Big" Any More?

A number of energy journalists have been asking this question at a pace which has gathered momentum over the past decade. Books have even been written about it. On Oct 7th, a week prior to Thursday’s OPEC conference, I had the pleasure of participating in a discussion under the auspices of S&P and Platt’s which touched on the subject in some detail, contextualising it with the Peak Oil hypothesis.

Here in Vienna, understandably, I find few takers for the hypothesis; at least not at OPEC HQ. But one statement has struck me. Celebrating the 50th anniversary of OPEC's foundation, in his opening address to the conference earlier on Thursday, Wilson Pástor-Morris, Minister of Non-Renewable Natural Resources of Ecuador and President of the Conference, noted:

“OPEC began as a group of five heavily exploited, oil-producing developing countries seeking to assert their sovereign rights in an oil market dominated by the established multinational oil companies. Today OPEC is a major player on the world energy stage. Our 12 Member Countries are masters of their own destiny in their domestic oil sectors and their influence reaches out into the energy world at large.”

Need one say more? OPEC feels NOCs are dominant; so does much of the rest of the market to a great extent. Pástor-Morris also said the issue production quota 'compliance' also featured in OPEC discussions, as the cartel reviews its production agreement.

“But we shall not lose sight of the bigger picture. Neither should anyone else. The achievement of market order and stability is the responsibility of all parties. It is not just a burden for OPEC alone. We all stand to gain from market stability, and so we must all contribute to achieving it and maintaining it,” he added.

© Gaurav Sharma 2010. Photo: Holly Rig, Santa Barbara, California, USA © James Forte / National Geographic Society

OPEC Leaves Production Levels Unchanged!

As widely expected, OPEC announced on Thursday that its members have agreed to keep its official oil production target at 24.84 million barrels a day. OPEC president Wilson Pastor-Morris said that the policy in place since December 2008, when it announced a record supply cut of 4.2 million barrels per day, is here to stay.

The cartel will next meet on December 11 in Quito, Ecuador to discuss the issue again. Despite being by pressed by journalists, OPEC Secretary General Abdalla Salem El-Badri insisted that individual members' quotas need not be published. “We know how each country behaves, the market should be happy with total quotas,” he said.

He added, the ever present issue of compliance with quotas, was an important one. By OPEC's own assement compliance was at 61% but a Reuters report puts the figure at 57%. In an interesting development - perhaps the only surprise of the day - OPEC announced that Iran will take over the rotating presidency of OPEC in 2011 for the first time in 36 years. Iranian petroleum minister Masoud Mir-Kazemi assumes the presidency from January 2011; watch this space!

© Gaurav Sharma 2010. Photo: © Gaurav Sharma, OPEC 157th Meeting, Vienna, Oct 14, 2010

OPEC’s Own Version of He Said, She Said…

Over each of last three years, in the run-up to the cartel's meeting, OPEC Secretary Secretary General Abdalla Salem El-Badri has tended not to give very much away. However, the 157th summit seems to be different; for over the last 6-12 months El-Badri has often stated that OPEC is comfortable with the crude oil price. In fact, he gave quite candid comments in June.

That said the price has remained in the circa of US$75 to US$85 per barrel and is heading higher as the US dollar has weakened in recent weeks. So El-Badri should indeed be comfortable with it.

But of course, no OPEC summit is complete with a bit of the old 'he said, she said'. The most important “he” in question is the Saudi oil minister Ali Al-Naimi who plainly told a media scrum here in Vienna on Wednesday that, and I quote, "Everyone" is happy with the market. To the market that reads like a coded signal he is against increasing output.

The only "she" on the table is of course Nigeria's petroleum minister - Diezani Kogbeni Alison-Madueke – who said OPEC (as always) will be looking at overproduction and non-adherence to quotas, at "this particular conference."

Sheikh Ahmed al-Abdullah al-Sabah of Kuwait when asked how the price of crude was at the moment, gave a short and sweet reply. Quite simply, he noted that, “It’s good.” Concurrently, Venezuelan Energy and Oil Minister Rafael Ramirez told a local TV network that "all" his colleagues agree they should leave the level of production stable.

Since arriving in Vienna, based on the 'he said, she said' rounds, I have had a jolly good natter with eight analysts here and a further three in London. All 11, as well as those at Société Générale expect a rollover in OPEC quotas and no change to actual output.

Finally as the forward month ICE Brent crude contract bounced to the stop-loss at US$84.55, analysts at Société Générale also believe a further range bound market is possible. "According to OPEC, the recent price rally does not reflect oil fundamentals (and we agree)," they wrote in an investment note.

© Gaurav Sharma 2010. Photo: © Shell

Vienna’s Most Oilholic of all Welcomes

As OPEC ministers and the world’s press descend on Vienna for the 157th OPEC meeting on Thursday, I cannot but help remarking that the city itself gives the most oliholic of all welcomes to its visitors whether you arrive by plane, train or automobile – or in my case – all three – but more on that later.

Landing on a night flight at Vienna airport one can get a direct view of an ocean of spotlights and night lamps of the OMV Schwechat refinery. Once you pull out of the airport, and your taxi or bus takes two right turns and hits the motorway, there’s the refinery again and well if you arrive by train say to Wien Meidling or Wien Westbahnhof stations – the oil tankers and carriages along the way simply cannot be missed.

Perhaps its not unusual to find oil and gas infrastructure in proximity of a major oil and gas town, something which quaint old Vienna is not, in my honest opinion. Still its OMV's hub, which is fast becoming a behemoth, or already is one if you asked a Hungarian analyst given its audacious but ultimately unsuccessful bid to acquire MOL in 2007.

Coming on to the subject of me having used planes, trains and automobiles – well I arrived in Vienna from London by plane earlier in the week, dashed off to Budapest for a meeting by train and have passed in front of the Schwechat refinery in automobiles of various descriptions – budget permitting - for the last six years.

It’s good to be back at OPEC, which is fast becoming an annual pilgrimage for me. Nothing about pricing in this blog post, but cant help observing though that OPEC would not change production quotas on Thursday.

© Gaurav Sharma 2010. Photo: Raffinerie Schwechat © OMV Refining & Marketing GmbH