U.S. oil production is putting a crimp on demand from OPEC suppliers, the cartel said in its monthly report for March. Saudi Arabia alone cut its output by around 700,000 barrels per day during the last two months in 2012. Some reports said that if U.S. oil production expands as it has, it may overtake Saudi Arabia by the end of the decade. That did little to discourage Saudi Oil Minister Ali al-Naimi, who said Asian demand may keep oil markets bustling. OPEC, in its last report, said it left its predictions for 2013 unchanged from last year. Though Asian demand may indeed keep the cartel relevant, internal developments in member states may crimp its mid-term potential.
The U.S. Energy Department said it expects domestic oil production to reach 7.9 million barrels per day by next year. The average for November and December was 7 million bpd, the highest volume recorded in twenty years. Demand for crude oil from members of the Organization of Petroleum Exporting Countries, meanwhile, declined 100,000 bpd compared to 2011 and should drop another 400,000 bpd in 2013, the cartel predicted. Saudi Oil Minister Ali al-Naimi said this week that the United States will "undoubtedly" play a greater role in the future oil market. For OPEC, however, the minister said there was an emerging pivot to Asia.
"The expectations of energy demand and growth are still positive," he said. "I was in Hong Kong recently and I felt optimism towards the future growth of the region."
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OPEC, in its March report, said world oil demand growth for 2013 was expected to remain at 800,000 bpd, relatively unchanged from previous assessments. Any growth in oil demand for the year is expected to come from China, where the economy is riding the wave of moderate recovery in areas outside the eurozone with 8.1 percent growth expected in 2013. OPEC said Chinese crude oil imports for January were near historic levels at 5.92 million bpd, a 6 percent jump from December.
Naimi said demand for Saudi crude is expected to rise this year. That may give fellow cartel members cause for relief as there have been few significant gains yet from the wave of unrest that swept across the Middle East in recent years. OPEC's report for March said Saudi Arabia and Iraq posted increases in oil production. Iraq, however, suffered a damning March as pundits and policymakers alike criticized the lack of progress there 10 years after the U.S.-led invasion. Iraq's internal dynamics make the country less-than ideal for multinational oil companies. Four contractors working for Korea Gas Co. were killed this week in Anbar province, once the seat of the Iraqi insurgency. Few of the other cartel members showed any significant gains. For Algeria, production has struggled to move past the 1.2 million bpd mark. Following al-Qaida attacks there in January, the soothing calm in Algeria has now turned eerie. Libya, meanwhile, hasn't yet returned to its pre-war glory as instability has festered longer than the civil war itself. Though recovery there has happened faster than most had expected, labor strikes and ongoing conflict have handicapped Libya's recovery.
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The Saudi oil minister said he'd welcome the United States to the oil podium, noting there's plenty of pie to go around.
"I, for one, welcome all new energy sources to the market," he said. "I don't think anyone should fear new supplies when set against increasing global demand."
With much of the Middle East in a state of turmoil, OPEC may need all the outside help it can get.
By. Daniel J. Graeber of Oilprice.com