• 2 days Shell Oil Trading Head Steps Down After 29 Years
  • 3 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 3 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 3 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 3 days Venezuela Officially In Default
  • 3 days Iran Prepares To Export LNG To Boost Trade Relations
  • 3 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 3 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 3 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 4 days Rosneft Announces Completion Of World’s Longest Well
  • 4 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 4 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 4 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 4 days Santos Admits It Rejected $7.2B Takeover Bid
  • 4 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 4 days Africa’s Richest Woman Fired From Sonangol
  • 5 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 5 days Russian Hackers Target British Energy Industry
  • 5 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
  • 5 days DOJ: Protestors Interfering With Pipeline Construction Will Be Prosecuted
  • 5 days Lower Oil Prices Benefit European Refiners
  • 5 days World’s Biggest Private Equity Firm Raises $1 Billion To Invest In Oil
  • 6 days Oil Prices Tank After API Reports Strong Build In Crude Inventories
  • 6 days Iraq Oil Revenue Not Enough For Sustainable Development
  • 6 days Sudan In Talks With Foreign Oil Firms To Boost Crude Production
  • 6 days Shell: Four Oil Platforms Shut In Gulf Of Mexico After Fire
  • 6 days OPEC To Recruit New Members To Fight Market Imbalance
  • 6 days Green Groups Want Norway’s Arctic Oil Drilling Licenses Canceled
  • 6 days Venezuelan Oil Output Drops To Lowest In 28 Years
  • 6 days Shale Production Rises By 80,000 BPD In Latest EIA Forecasts
  • 7 days GE Considers Selling Baker Hughes Assets
  • 7 days Eni To Address Barents Sea Regulatory Breaches By Dec 11
  • 7 days Saudi Aramco To Invest $300 Billion In Upstream Projects
  • 7 days Aramco To List Shares In Hong Kong ‘For Sure’
  • 7 days BP CEO Sees Venezuela As Oil’s Wildcard
  • 7 days Iran Denies Involvement In Bahrain Oil Pipeline Blast
  • 9 days The Oil Rig Drilling 10 Miles Under The Sea
  • 10 days Baghdad Agrees To Ship Kirkuk Oil To Iran
  • 10 days Another Group Joins Niger Delta Avengers’ Ceasefire Boycott
  • 10 days Italy Looks To Phase Out Coal-Fired Electricity By 2025
Alt Text

Putin’s Masterstroke Of Energy Diplomacy

Russia’s gargantuan $30 billion energy…

Alt Text

Are Oil Markets Immune To U.S. Shale?

Oil prices have maintained their…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

OPEC Meets As World Oil Demand Rises, Production Sputters

OPEC Meets As World Oil Demand Rises, Production Sputters

Last December, as OPEC prepared to meet in Vienna, Bloomberg News reported that analysts it polled had predicted that the oil cartel would leave its production quota unchanged in the face of a growing supply glut. Despite its plans, “falling oil demand and prospects for increased supply from some member states mean the group’s leader, Saudi Arabia, will have to cut production anyway,” Bloomberg predicted. The age of abundance appeared to be upon us.

Six months later, OPEC may have the opposite problem on its hands. Despite December predictions that Saudi Arabia would need to trim its output by 1 to 2 million barrels per day (bpd) to prevent a price collapse, the oil kingdom kept its output level in the intervening months, and even slightly increased output to 9.66 million bpd in April from 9.56 million bpd in March.

The group will meet on June 11 in Vienna amid sputtering output among many of its member states and better than expected economic growth in China and the U.S., the world’s largest oil consumers.

Taken together, global oil markets may be undersupplied for the second half of this year, with analysts now predicting Saudi Arabia may need to lift production substantially to meet demand. Saudi Arabia may need to boost output to somewhere between 10.2 and 11 million bpd to prevent prices from spiking, but the Bloomberg survey suggested analysts question whether or not the world’s largest oil producer can fill the void.

The big difference over the last six months – and why predictions by market watchers have been so off – is that several major oil producing countries have been affected by internal instability or geopolitical upheaval, which has prevented production levels from rising, and in some cases, knocked some output offline.

Related Article: Kurdish Oil Looks For Buyers As Baghdad Warns Them Away

Libya has been experiencing internal political battles that appeared to be on the verge of resolution earlier this year. Anti-government forces have taken control over oil ports in the east, while the recognized government in Tripoli has denounced any efforts by separatists to export oil as illegal. In April, the two sides appeared to be close to a diplomatic solution that would lead to the resurgence of Libya’s oil sector, which has the potential of producing 1.6 million barrels per day (bpd). The troubled country has been unsuccessful thus far at boosting oil exports and the political struggle between the two sides continues. Libya is now producing less than 200,000 bpd according to recent data.

Iraq, too, has disappointed oil markets. Despite ongoing violence, Iraq has made enormous strides in bringing many of its oil fields online. In recent years, Iraq surpassed Iran to become OPEC’s second largest oil producer, and the government led by Nouri Al-Maliki was aiming to lift oil production to 4 million bpd in 2014. Iraq hit 3.6 million bpd in February – a 35-year high – but since then its output has fallen back by 8 percent due to attacks on oil pipelines. It will struggle to meet production expectations through 2014.

An interim deal between Iran and the West lifted hopes at the end of 2013 that Iran would be able to return some of its oil production to market, sending prices downward. Western sanctions have targeted Iran’s oil sector with ruthless efficiency, cutting exports from more than 2.5 million bpd before 2012, down to 1 million bpd last year.

The thaw in relations since the July, 2013 election of Iranian President Hassan Rouhani -- and the six-month sanctions-easing deal reached last November -- led to speculation that Iran would again become a major oil exporter. Indeed, Iran succeeded in lifting oil exports above 1 million bpd, defying the terms of their deal with the West, but any further increases depend on a comprehensive deal over Iran’s nuclear program, which has thus far proved elusive. The July deadline to reach a deal is quickly approaching and the failure to either secure an agreement or a six-month extension would result in an automatic return to sanctions.

On top of the unexpected troubles facing several OPEC producers, the economies of China and the United States – the two largest oil consumers in the world – have performed much better than was expected only six months ago. The U.S. has finally regained the jobs lost in the financial crisis, and fears over a hard landing for China’s economy have not been borne out by the facts, at least not yet.

Related Article: Safety Concerns Mount As Rail Shipments Of Oil Grow

So we are back to a scenario in which global oil markets are tight once again, even with Saudi Arabia maintaining elevated production. At the upcoming Vienna meeting, OPEC is expected to leave its output quota unchanged, and any increase in production would need to come from the cartel’s largest producer. Saudi Arabia, as the only holder of significant spare oil capacity, stands alone as a source for additional supplies the world may need for the remainder of the year. But while dipping into Saudi Arabia’s spare capacity – which stood at only 1.96 million bpd in the first quarter – could provide short-term relief, it would also leave the markets increasingly vulnerable to a supply disruption.

Six months ago it appeared we were entering a period of a supply glut, but oil markets have suddenly tightened, even though Saudi Arabia decided not to cut production. Unless other OPEC members pick up the slack, oil prices could climb higher in the latter half of this year.

By Nick Cunningham of Oilprice.com

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News