This article demonstrates that hardly anyone has a friggin clue what the hell is going on.
Let me guess continual overestimation of supply and underestimation of demand.
DJ. ENERGY MATTERS: OPEC Might Not Cut Quotas In Feb
By David Bird
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--Despite all the rhetoric until now, don't bet the house
on OPEC cutting its oil output quotas at its Feb. 10 meeting.
Energy Matters hears there are significant doubts being raised among some key
OPEC members about whether the group needs to lower its official output levels
when it meets next month in the Algerian capital.
Spooked by the prospect of a post-winter price crash, many members of the
Organization of Petroleum Exporting Countries had raised the alarm over the
past several weeks that OPEC again would need to cut quotas at the February
talks.
But a host of factors, led by stronger-than-expected demand which has kept
prices exceptionally high, signs of lower-than-expected non-OPEC supply, and
worries over prolonged tight inventories, are inspiring a rethinking of that
view.
The potential climb-down from the earlier hardline stance comes as the U.S.,
the world's biggest oil consumer, has told several OPEC officials that current
oil prices above $33 are too high.
Since that early December message to OPEC leader Saudi Arabia and others,
prices have stayed inflated and U.S. commercial inventories are reported to
have fallen to historic lows.
An Energy Matters review of preliminary U.S. data from the Energy Information
Administration shows that fourth-quarter total commercial stocks dropped by
about 420,000 barrels a day from the third quarter. That's in line with the
2002 decline and the five-year average.
Significantly, a review of data since 1993 from the International Energy
Agency shows that when U.S. inventories drop in the fourth quarter, stocks in
the major industrialized nations comprising the Organization for Economic
Cooperation and Development drop, too.
In the 2003 fourth-quarter, OECD stocks (used as an indicator of global
trends) dropped by nearly 1.1 million b/d and the five-year average decline
has been around the 1 million b/d level, too.
Signs Point To Winter Stock Draw
Given the similarity in the U.S. and OECD past performance, it may not be
unreasonable to believe that stocks in the industrialized nations - already
tight - fell by a typical 1 million b/d during the fourth quarter.
In September, when OPEC shocked the market with a surprise decision to cut
oil output quotas by 900,000 b/d from Nov. 1, it acted on fears of a potential
counter-seasonal fourth-quarter stockbuild of 600,000 b/d.
Now, it seems those fears are unfounded.
U.S. commercial oil stocks are projected to drop by about 200,000 b/d in the
first quarter, and, again OECD stocks are likely to follow suit. Just once in
the past 11 years have OECD stocks risen in the first quarter. That means
further pressure on tight inventories and a potential further prop for prices.
Since the September move, oil prices have surged, even as OPEC's output has
risen, not fallen, despite the cut in quotas.
OPEC's September action came as the price of its reference basket of crudes
dipped below $25 for two consecutive days. But since the Sept. 24 decision, the
basket has averaged $28.70, and above the upper end of the group's $22-$28
target trading band for 75% of the time.
OPEC this week decided to ignore its own guidelines for boosting quotas to
cool down prices, despite the basket price staying above $28 for 20 straight
trading days.
The group said its price band mechanism, which would have added 500,000 b/d
to the current 24.5 million b/d output ceiling, was meant to correct shortages
in the market, which they say don't exist now.
Some in OPEC say, that with the group estimated already to be pumping about 1
million b/d over agreed levels, adding extra barrels to the on-paper quotas
wouldn't do much.
Instead, OPEC is taking a hard look at its supply/demand figures and those of
others ahead of the Algiers talks.
Sources familiar with early December talks between U.S. and Saudi officials
say the world's biggest oil exporter expressed the view that it didn't expect
prices to continue at prevailing highs for much longer.
Reworking The Numbers
Still, there may have to be some serious recalculations for OPEC to opt for
keeping the current ceiling - albeit with stricter adherence to quotas - rather
than further cuts.
IEA projections issued early last month showed the world would need just 26.6
million b/d of crude from OPEC and movements from global stockpiles in the
fourth quarter. Yet, by OPEC reckoning, the group's output has averaged some
800,000 b/d higher than that, and stocks now appear to have fallen
significantly.
That suggests there's been a considerable mis-estimation somewhere in the
equation.
But key OPEC officials admit it would be politically difficult, if not
impossible, for OPEC to cut quotas with U.S. crude futures trading near $33 and
its own basket price above the target, and near $30.
While OPEC blames high prices on speculators - who have aggressively built up
net long positions on Nymex - there are some genuine signs of significant
strong demand, mixed with suspicions that non-OPEC supply, especially from
Russia, may be lower than anticipated.
Preliminary U.S. data show full year and fourth-quarter demand setting
records, at above 20 million b/d for the first time, despite the high prices.
Total commercial stocks ended the year at 929 million barrels, more than 60
million barrels below the five-year average. Based on demand projections,
that's the lowest forward coverage afforded by stocks at this time of year in
at least the last five years.
Latest EIA estimates, published Wednesday, show tight U.S. commercial oil
inventories won't approach their five-year averages until the fourth-quarter
2004.
Low U.S. Crude Stocks Through 2004
U.S. commercial crude stocks, according to EIA, ended 2003 at their lowest
level since 1975, at 270.7 million b/d and fell below that level in the latest
week to less than 269 million barrels. EIA data show that's the lowest weekly
level on record, dating back to August 1982, and below what had been considered
the comfortable minimum operating level to avoid shortages.
Latest EIA projections show U.S. crude stocks staying below five-year
averages in each quarter of 2004.
Low crude stocks come as imports and refinery operations set record high
levels in 2003.
A crucial factor in how long prices may stay strong will be how long refiners
keep running at record levels.
Exceptionally strong margins put fourth-quarter U.S. crude throughputs at a
record 15.336 million b/d, early data show, up 550,000 b/d, or 3.7%, from a
year earlier.
December runs averaged near that level, too, but a whopping 877,000 b/d above
the five-year average of first-quarter crude input. |
