Sloppier Balances Have Minimal Price Impact
(Copyright © 2005 Energy Intelligence Group, Inc.)
Petroleum Intelligence Weekly Monday, May 9, 2005
Opec is keeping its foot on the accelerator in an effort to break the back of the current oil price rally by continuing to pour on the oil supply even as global demand begins to slide into the seasonal doldrums. PIW soundings show a fourth successive monthly rise in Opec oil supply in April, to a whopping 30.27 million barrels per day, which is on a par with peak winter flows in December. However, if lower prices are the aim, the game isn't working yet: As oil flows and inventories mounted, the Opec reference basket of crudes averaged an eye-watering $49.63 per barrel last month. Saudi Arabia led the Opec gains, with a 265,000 b/d monthly increase. Saudi crude output -- including its 50% share of the Neutral Zone -- averaged an estimated 9.6 million b/d in April and may have reached as high as 9.8 million b/d by the end of the month. The Saudis began to ramp up production after the mid-March Opec meeting (PIW Apr.11,p5). The kingdom's current capacity is reckoned to be around 11 million b/d. Among other Opec players, Kuwait and Nigeria added 130,000 b/d and 90,000 b/d, respectively (p6). Even with these increases, crude output from the 10 members of Opec that are nominally subject to quotas -- Iraq is not -- grew by only 300,000 b/d from the previous month, held back by maintenance at the ConocoPhillips' Petrozuata synthetic crude venture in Venezuela.
While Opec continues to pump at an elevated level, non-Opec supply is set for its habitual decline in the second quarter as maintenance activities begin in the North Sea. Natural gas liquids flows will also drop as gas use eases after the Northern Hemisphere winter. Though this should reduce net global supply during the current quarter, demand is expected to fall by a much larger volume, creating room for further rises in crude inventories, which are at their highest in the US since 1999, according to the US Energy Information Administration (EIA). Already in April, demand fell by 500,000 b/d, according to preliminary soundings by PIW's sister publication Oil Market Intelligence, while non-Opec supply was down just 125,000 b/d. Nevertheless, the Opec production gains more than offset this fall and global supply rose to just shy of 85 million b/d (see table). EIA data showed US crude stocks at 327 million bbl on Apr. 29, which was 28.3 million bbl up on a year ago.
Global balances had already swung into surplus in March, with supply running about 300,000 b/d ahead of demand. Preliminary assessments suggest this surplus ballooned to over 1 million b/d in April. For the quarter as a whole, a 2.5 million b/d stockbuild appears to be in the cards. Such a build would normally punish oil prices, but it is likely to be mostly ignored this time around, as attention is firmly focused on an anticipated tight fourth quarter and beyond (p8). Soon after the last Opec ministerial meeting in mid-March, the group's de facto secretary general, Adnan Shihab-Eldin, raised the bar considerably on OECD commercial inventory levels, saying Opec would be comfortable with 56 days of forward supply cover, rather than the 51-52 days cover previously favored. This reinforced the view that stocks built in the second quarter were intended to fill the supply gap expected in the fourth quarter, and would keep a lid on prices in the meantime. Assuming a majority of the current quarter's stockbuild goes into OECD tanks, the implied rate of fill would result in about 56 days by the end of the quarter.
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From energyintel.com |
