High demand limits OPEC's leeway
By Simon Romero The New York Times
WEDNESDAY, JUNE 15, 2005
iht.com
IMPORTANT POINTS:
"OPEC could add about 700,000 to 800,000 barrels of daily production capacity among its members by the end of the year, according to the International Energy Agency."
"Demand is expected to reach 86.4 million barrels a day in the fourth quarter, the International Energy Agency said this month, translating into 1.78 million barrels a day more than last year, or a 2.2 percent increase."
A year ago, demand was at 84.6 mbpd?!? Regardless, if OPEC can't increase production by more than 800,000 bpd by 4Q, then isn't a huge shortfall inevitable by 4Q 2005? (there is no way non-opec countries can ramp up production by a net of 1mbpd after you factor in depletion...is there?) Am I understanding this correctly (assuming the IEA's numbers are right)?
********************************************
VIENNA OPEC representatives arriving for a meeting here this week said they were prepared to raise their oil production ceiling in an effort to bring down high crude oil prices but emphasized that strong international demand for oil limited their ability to influence the markets.
"OPEC members are already pumping at full capacity and can do nothing about prices," Bijan Zanganeh, the oil minister of Iran, the second-largest OPEC producer, after Saudi Arabia, said in Tehran before traveling to Vienna.
Ali al-Naimi, the oil minister of Saudi Arabia, the most pivotal member of the Organization of the Petroleum Exporting Countries, said he supported raising the group's output ceiling by 500,000 barrels a day but suggested that refining bottlenecks in major industrialized countries would prevent such an increase from having much effect on prices.
OPEC, which produces 40 percent of the world's oil, still appears to be somewhat stymied by the resilient demand for oil in major markets like China and the United States, even if member countries have been delighted at the financial windfall created by high prices.
Production quotas for OPEC's members excluding Iraq now total 27.5 million barrels a day. The International Energy Agency estimates that those 10 OPEC nations actually produced 27.51 million barrels a day in May as they rushed to exploit strong demand.
Katherine Spector, an energy strategist at J.P. Morgan in New York, said that while some OPEC members were publicly calling for more production, such statements were "mostly semantic" because, in effect, OPEC members have recently been giving a smaller discount for the oil they sell in international markets, by comparison with the commonly quoted prices.
OPEC's enhanced bargaining power is yet another illustration of the growing global demand for oil.
Demand is expected to reach 86.4 million barrels a day in the fourth quarter, the International Energy Agency said this month, translating into 1.78 million barrels a day more than last year, or a 2.2 percent increase.
World oil demand rose 3.4 percent in 2004, the fastest pace in a quarter-century, as the economies of China and the United States required more oil for their factories and automobiles.
China alone accounted for about 40 percent of new oil demand from 2001 to 2004 and is planning to build a strategic petroleum reserve similar to the reserves in the United States and some European countries, a move that could put additional pressure on oil prices this year.
Oil prices rose sharply ahead of the OPEC meeting, which is scheduled for Wednesday at its headquarters in Vienna. Crude oil for July delivery was down 2 cents to $55.60 a barrel in premarket trading on the New York Mercantile Exchange on Tuesday after jumping more than $2 a barrel on Monday and reaching an intraday peak of $55.80, the highest price since April 25. Oil prices, which are up 28 percent from a year ago, climbed to a record $58.28 on April 4 and then pulled back.
Some OPEC representatives remain worried that high prices could encourage consumers in rich countries to start switching to other fuels as energy efficiency becomes a bigger concern. There is little evidence, however, to suggest that such a large-scale transition might be under way. In fact, the major international oil companies are factoring in estimates for relatively high prices into the foreseeable future.
Senior executives at both Royal Dutch/Shell and BP have said that they expect oil prices to remain at or around $40 a barrel for at least the next several years. Forecasters at Shell went even further this month, discussing a scenario in which the governments of oil-rich countries become more aggressive over the next two decades in their dealings with private companies.
The pursuit of such policies by the governments of countries in OPEC and elsewhere might seem reminiscent of the 1970s, when the United States, Europe and Japan were shaken by oil embargoes and the nationalization of private oil company assets in several producing countries. But in a major difference with that era of oil shocks, oil price increases over the past two years have not been driven by the restriction of supply but by an unforeseen and steady climb in demand.
OPEC could add about 700,000 to 800,000 barrels of daily production capacity among its members by the end of the year, according to the International Energy Agency.
But it remains to be seen whether the availability of that oil will have an effect on prices, given the tight refining capacity for certain blends of oil and forecasts of rising demand.
VIENNA OPEC representatives arriving for a meeting here this week said they were prepared to raise their oil production ceiling in an effort to bring down high crude oil prices but emphasized that strong international demand for oil limited their ability to influence the markets.
"OPEC members are already pumping at full capacity and can do nothing about prices," Bijan Zanganeh, the oil minister of Iran, the second-largest OPEC producer, after Saudi Arabia, said in Tehran before traveling to Vienna.
Ali al-Naimi, the oil minister of Saudi Arabia, the most pivotal member of the Organization of the Petroleum Exporting Countries, said he supported raising the group's output ceiling by 500,000 barrels a day but suggested that refining bottlenecks in major industrialized countries would prevent such an increase from having much effect on prices.
OPEC, which produces 40 percent of the world's oil, still appears to be somewhat stymied by the resilient demand for oil in major markets like China and the United States, even if member countries have been delighted at the financial windfall created by high prices.
Production quotas for OPEC's members excluding Iraq now total 27.5 million barrels a day. The International Energy Agency estimates that those 10 OPEC nations actually produced 27.51 million barrels a day in May as they rushed to exploit strong demand.
Katherine Spector, an energy strategist at J.P. Morgan in New York, said that while some OPEC members were publicly calling for more production, such statements were "mostly semantic" because, in effect, OPEC members have recently been giving a smaller discount for the oil they sell in international markets, by comparison with the commonly quoted prices.
OPEC's enhanced bargaining power is yet another illustration of the growing global demand for oil.
Demand is expected to reach 86.4 million barrels a day in the fourth quarter, the International Energy Agency said this month, translating into 1.78 million barrels a day more than last year, or a 2.2 percent increase.
World oil demand rose 3.4 percent in 2004, the fastest pace in a quarter-century, as the economies of China and the United States required more oil for their factories and automobiles.
China alone accounted for about 40 percent of new oil demand from 2001 to 2004 and is planning to build a strategic petroleum reserve similar to the reserves in the United States and some European countries, a move that could put additional pressure on oil prices this year.
Oil prices rose sharply ahead of the OPEC meeting, which is scheduled for Wednesday at its headquarters in Vienna. Crude oil for July delivery was down 2 cents to $55.60 a barrel in premarket trading on the New York Mercantile Exchange on Tuesday after jumping more than $2 a barrel on Monday and reaching an intraday peak of $55.80, the highest price since April 25. Oil prices, which are up 28 percent from a year ago, climbed to a record $58.28 on April 4 and then pulled back.
Some OPEC representatives remain worried that high prices could encourage consumers in rich countries to start switching to other fuels as energy efficiency becomes a bigger concern. There is little evidence, however, to suggest that such a large-scale transition might be under way. In fact, the major international oil companies are factoring in estimates for relatively high prices into the foreseeable future.
Senior executives at both Royal Dutch/Shell and BP have said that they expect oil prices to remain at or around $40 a barrel for at least the next several years. Forecasters at Shell went even further this month, discussing a scenario in which the governments of oil-rich countries become more aggressive over the next two decades in their dealings with private companies.
The pursuit of such policies by the governments of countries in OPEC and elsewhere might seem reminiscent of the 1970s, when the United States, Europe and Japan were shaken by oil embargoes and the nationalization of private oil company assets in several producing countries. But in a major difference with that era of oil shocks, oil price increases over the past two years have not been driven by the restriction of supply but by an unforeseen and steady climb in demand.
OPEC could add about 700,000 to 800,000 barrels of daily production capacity among its members by the end of the year, according to the International Energy Agency.
But it remains to be seen whether the availability of that oil will have an effect on prices, given the tight refining capacity for certain blends of oil and forecasts of rising demand. |
