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Why OPEC is Worried About the U.S. Congress

By Daniel J. Graeber | Wed, 16 January 2013 22:57 | 4

The Organization of Petroleum Exporting Countries in its report for January said the United States in 2013 may post the highest oil supply increase among non-member states. U.S. oil production should increase by 490,000 barrels of oil per day this year to reach an average of 10.4 million bpd. OPEC said much of the production increase should come from more drilling in the Gulf of Mexico and the oil boom under way in North Dakota. Production from member states Iran, Iraq and Saudi Arabia, meanwhile, declined. Riyadh said recently it wasn't trying to manipulate the commodities market and, given the downbeat assessment of the U.S. economy, it may be congressional leaders that eventually face the ultimate blame for economic woes despite the oil boom.

OPEC in its January report said it expected U.S. oil supply to increase in 2013.  This sentiment was supported by increased drilling in the Gulf of Mexico. Oil supply levels in North Dakota, meanwhile, continued to set records while onshore production in Texas showed what the cartel said was "healthy growth." U.S. oil supply in 2013 is expected to increase by nearly 5 percent to 10.44 million bpd, which OPEC said was the highest projected increase for non-member states.

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For OPEC members, overall crude oil production was down more than 1.5 percent from November figures to settle at 30.37 million bpd in December. The cartel said production fell in Iraq, Iran and Saudi Arabia.  Riyadh had defended allegations it was trying to manipulate commodity markets when it cut its own crude oil production by nearly 5 percent. The oil-rich kingdom has kept markets stabilized in the past, mostly recently when Libya was shut out of the oil markets by war. But given the increase in production from non-OPEC members, and following reports from Citigroup the kingdom may become a net importer, Riyadh may simply be making room for emerging oil majors like the United States.

Overall, world oil demand for 2013 remains unchanged according to OPEC at 800,000 bpd. The cartel, however, said it expected a marginal decline of 200,000 bpd compared to 2012 for OPEC crude. The modest adjustments follow estimates from OPEC that the global economy will grow by 0.2 percent to 3.2 percent in 2013. That's unchanged from OPEC's market report in December. China, Japan, and even the Eurozone, are all expected to show some level of growth this year.

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The emergence of the United States as a global oil leader, however, adds virtually nothing to stimulate the nation's economy, according to OPEC. OPEC said its growth expectations for the U.S. economy remained at 2.0 percent, unchanged from December's report. The cartel said U.S. oil consumption, a reflection of economic health, could return to negative territory if congressional leaders are unable to settle ongoing fiscal issues related to the debt ceiling. The U.S. Treasury Department last year averted a fiscal disaster by taking some measures to ease debt concerns. The cartel said if no solutions are found to the pending financial chaos, however, the U.S. economy may take a hit on its gross domestic product.  Fitch Ratings this week said the U.S. credit rating is in jeopardy should negotiations on the debt ceiling go nowhere. For OPEC, meanwhile, there are fears of "major uncertainty" in the U.S. economy.

By. Daniel J. Graeber of Oilprice.com

About the author

Contributor
Daniel J. Graeber
Company: Oilprice.com
Position: Senior Analyst

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  • Bob Berke on January 17 2013 said:
    "The emergence of the United States as a global oil leader, however, adds virtually nothing to stimulate the nation's economy, according to OPEC." How in the world is that possible. Producing more than the Saudi's add nothing to the US economy. One look at N.Dakota's booming economy will show that statement is pure nonsense.
  • Jesse on January 17 2013 said:
    It's actually not. In order for fracking to be viable the price per a barrel has to be at least $70. Which means gas prices aren't going down any time soon, and more likely they'll be going up. Especially since they have to keep putting incredible amount of new wells into operation to offset frackings huge decline rates. It's also not cheap drilling thousands of feet underground that is thousands of feet under water. When one exploratory oil well cost hundreds of millions of dollars, and it's dry...you know cheap oil is gone. Which is NOT good for the economy. You can have all the oil in the world, and it wouldn't be any good for the economy if people can't afford to get to it. Read IMFs paper The Future of Oil: Geology versus Technology.
  • Bob Berke on January 17 2013 said:
    You mean that N. Dakota's 3% unemployment rate has no effect on the economy?
  • khpage on January 18 2013 said:
    Gentlemen: may I suggest that you read the following book - "The Deep, Hot Biosphere: the myth of fossil fuels" by Dr. Thomas Gold, professor emeritus of physics at Cornell University. His contention that our "oil" is produced by untold billions of anerobic bacteria located in the crust of the earth is a genuinely interesting one. It certainly fits in with the fact that in regular #2 diesel fuel fresh from the refinery there are significant amounts of bacteria present. If you own a diesel you should always use a biocide to contain the problem, of course.

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