Sunday, November 18, 2007

Vela Orders 4 VLCCs for $600 million

Daewoo Shipbuilding Wins Order for Oil Tankers at Record Price
By Kyunghee Park
Nov. 14 (Bloomberg)

Daewoo Shipbuilding & Marine Engineering Co., the world's third-largest shipbuilder, received an order to build four crude tankers at an industry record price from Vela International Marine Ltd. of Saudi Arabia.

The 317,000-deadweight-ton tankers were priced at about $151 million each, Seoul-based Daewoo said in an e-mailed statement today. A 300,000-ton vessel cost $142 million at the end of September, according to Clarkson Plc, the world's biggest shipbroker. The order was announced yesterday.

Shipyards in South Korea, the world's biggest shipbuilding nation, have received record orders this year as global demand for iron ore, fuel, toys and computers increase the need vessels. Ship prices have more than doubled to a record since 2003, when they came off from a 10-year low.

``The order will help further improve Daewoo Shipbuilding's profitability,'' the shipbuilder said in the statement.

Including the latest order, Daewoo Shipbuilding now has a total of $18 billion in new contracts this year, surpassing its target of $17 billion. The company's backlog rose to about $39 billion, representing more than three years of work.

Daewoo Shipbuilding added 2.6 percent to 50,800 won as of 9:48 a.m. in Seoul, compared with a 2.4 percent advance in the benchmark Kospi index. The stock has climbed 74 percent this year, about double the Kospi's gain.

Saudi pipeline blast kills 28

Saudi pipeline blast kills 28
The Associated Press
Nov. 18, 2007


An explosion set a gas pipeline ablaze and killed 28 workers in eastern Saudi Arabia, the Saudi national oil company Aramco said Sunday.

"The fire broke out while contractor workers where linking a new pipe" to the pipeline during maintenance late Saturday, Aramco said in a statement.

It said 28 workers, including five Aramco employees, had died in the fire, which was put out early Sunday some 30 kilometers from its Hawiyah gas plant.

The company did not specify how many people had been injured in the blaze, or give the victims' nationalities.

"The company is taking all necessary measures to guarantee the continuation of the normal gas output," it said.

Saudi Arabia's national oil company, Saudi Aramco is the world's largest oil producer, located on the country's east coast.

The Hawiyah plant produces 310,000 barrels of ethane and NGL daily.

URL: http://www.msnbc.msn.com/id/21864094/

Tuesday, November 13, 2007

IEA Cuts Oil Demand Forecast

IEA Cuts Oil Demand Forecast as High Prices Curb Use
By Bill Murray
Nov. 13 (Bloomberg)


The International Energy Agency, the adviser to 26 oil-consuming nations, cut its forecast for global demand for the rest of this year and 2008 as prices near $100 a barrel slow consumption in the U.S., Europe and Japan.

Global demand next year will be 87.69 million barrels a day, the IEA said today in its monthly report, 300,000 barrels a day less than its previous estimate. The Paris-based agency reduced its estimate for the fourth quarter by 500,000 barrels a day, to 87.14 million barrels.

The IEA has cut its fourth-quarter forecast three times since August on expectations higher gasoline prices and an economic slowdown in the U.S. will restrain demand in the world's largest energy consumer. Federal Reserve Chairman Ben S. Bernanke said last week the U.S. economy is likely to ``slow noticeably'' this quarter.

``We are certainly seeing a downward revision for 2007 and 2008, and high prices starting to have an effect,'' Lawrence Eagles, chief author of the monthly report, said.

``Consumer spending on transportation fuel in the U.S. is reaching the type of levels in the 1980s'' when inflation- adjusted prices were at similar levels, he said in an interview.

India, China

Oil prices have risen 53 percent this year on surging demand from developing countries led by China and India. Futures reached a record $98.62 a barrel in New York on Nov. 7. Chinese and Indian demand for crude could create a supply ``crunch'' as soon as 2015, the IEA said in a separate report last week.

``The whole fact that we've approached $100 has created a scare for some people,'' said Michael Davies, an energy analyst with Sucden (U.K.) Ltd. in London. ``The underlying fundamentals are that we're expecting tighter markets through 2015.''

Oil demand in the U.S. will be slower than previously expected next year as near-record fuel prices and a slumping housing market depress consumer spending, the IEA said.

Still, while the rapid increase in global prices this year has affected demand, especially in the U.S., ``it is too soon to believe that significant structural changes have taken place to make this lower level of demand permanent,'' the report said.

Stockpiles Fall

Industry stockpiles in the world's most developed economies fell 29.5 million barrels in September to 2.6 billion barrels. Global inventories are 113.9 million barrels lower than a year and Japanese crude stock levels are at their lowest in at least 20 years, the report said.

``The warning flags on demand are out there and we're not into the winter yet,'' said Mike Wittner, a commodities analyst with Societe Generale in London. ``Even with the revisions the IEA has made, the market still expects stock draws into the winter and the first quarter, and that's what the market is keying on.''

In addition, half of the world's growth in oil demand is in China and the Middle East, where consumers benefit from government fuel subsidies, the report said.

Chinese oil demand is expected to remain ``strong,'' driven by economic growth, while rising oil revenue in the Middle East mean that subsidies are ``more easily financed and unlikely to be removed,'' the IEA said.

OPEC Call

The ``call on OPEC,'' an estimate by the IEA of how much crude is needed from the Organization of Petroleum Exporting Countries to balance global markets, was reduced by an average 400,000 barrels a day for 2008 to 31.3 million barrels a day, in part because of lower demand in the world's most developed economies.

The IEA cut its estimate of non-OPEC oil production for 2007 by 35,000 barrels a day to 50.1 million barrels a day, and left unchanged its estimate for 2008 at 51.2 million barrels a day on supply from the U.S., Canada, Brazil and Russia.

Production of crude oil from OPEC's 12 members, including new member Angola, rose 410,000 barrels a day in October to an average 31.2 million barrels a day, the IEA estimated, with half the increase coming from Iraq and Angola.

Crude output from Saudi Arabia, OPEC's largest member, rose 100,000 barrels a day last month, to 8.57 million barrels a day, while Iraqi supply gained 120,000 barrels a day to 2.3 million barrels a day, the highest since April 2004, the IEA said.

Excluding Angola and Iraq, which are exempt from OPEC's output targets, the producer group pumped 27.15 million barrels a day last month, a gain of 195,000 barrels daily. OPEC spare capacity slipped in October to 2.46 million barrels, the report said.

Monday, November 12, 2007

Saudi Arabia Pushes for Extra 500,000 bpd OPEC Hike

Saudi Arabia Pushes for Extra 500,000 bpd OPEC Hike
by Adam Smallman and Spencer Swartz
Nov 12th, 2007


Saudi Arabia is to push for an extra 500,000 barrels-a-day hike in output by OPEC, or 1.8%, as soon as this week if oil prices drive toward $100 a barrel, an official familiar with the situation said Monday.

Speaking the day after Saudi Arabia's Oil Minister Ali Naimi indicated that the 12-member Organization of Petroleum Exporting Countries may discuss a production increase, an official close to the group's policy discussions told Dow Jones Newswires: "The Saudis want another 500,000 barrels a day in the market. They don't like these prices for consumers."

Leaders from the world's top oil producers will meet this weekend in Saudi Arabia's capital, Riyadh to discuss the challenges a potential global recession and an anemic dollar present to their estimated $1.8 billion a day in revenue.

Presidents, sheikhs and a king from the OPEC cartel, which meets more than 40% of the world's needs, are to discuss a raft of challenges to their core business, including soaring costs to projects, heightened environmental concerns that spur a push toward alternative energies, and what, if anything, they can do to prevent record oil prices from destabilizing the global economy.

Senior officials within the Saudi Arabian delegation have made it plain they don't feel comfortable with current oil prices, which have almost doubled from a low of $49.90 a barrel in January to a record $98.62 a barrel for U.S., light, sweet crude last week, and that something must be done.

In Kuwait Sunday, Naimi, OPEC's de facto leader, told reporters: "It is premature" to speak of a production hike, but "when OPEC meets, we will discuss this issue," though it was unclear if he was referring to this week's summit or formal OPEC policy talks by oil ministers due Dec. 5 in Abu Dhabi.

One sticking point is the timing of any such a move. The official said the timing would hinge on talks with other OPEC oil ministers, who will meet Thursday or Friday in a closed session ahead of the summit of heads of state in Riyadh at the weekend.

"If the market progresses (and rises above) $100 a barrel, I think the Saudis will push for something then and not wait until the December meeting," the official said.

But a source familiar with OPEC thinking said Monday that insiders "really don't want this summit to turn into an OPEC policy meeting" and senior officials "are not getting any indication that they'll do anything" this week. It was, the source added, perfectly possible that oil ministers might agree to something late this week.

OPEC Revenue

OPEC's revenue may climb 9% this year to $658 billion, the Financial Times reported Monday, citing the U.S. Energy Information Administration, but, with rising economic concerns driven by a worsening global credit crunch, it is oil and the associated costs of heating fuel and gasoline that some economists now say could be the trigger for a full scale economic meltdown.

But the oil leaders may have little wiggle room when it comes to averting such an event, as many believe a wall of investment cash, not constrained oil flows, lie behind the record prices. Any move to add, say, a million barrels a day of additional oil, or around 3% more than they currently pump, would eat into Saudi Arabia's spare capacity ahead of the worst of winter, and at a time of heightened concern over OPEC member Iran's nuclear program and the future stability of U.S. ally Pakistan.

OPEC members at their last meeting on Sept. 11 agreed to raise output by 500,000 barrels a day from Nov. 1, shared among the 10 members with production quotas, amid growing concerns high oil prices may adversely affect global economies and that demand could outstrip oil supplies as the northern hemisphere's energy consuming nations head into winter season.

According to estimates by Dow Jones Newswires, the OPEC-10 in October were already pumping roughly in line with their new target of 27.25 million barrels a day, with Iraq and Angola, which don't have quotas, pumping a further 3.9 million barrels a day.

"However, OPEC's announcement has not yet dampened upward price pressure, and it is unlikely that these higher volumes will be enough to halt the downward trend in commercial inventories over the next several months," the U.S. Energy Information Administration said.

Indeed, recent output hikes by OPEC have tended to be followed by record high oil prices as investors assume spare capacity is shrinking and demand will outstrip supply.

With no OPEC hike agreed this week, leaders, many of whom hold competing political views, may be forced into issuing a bland communiqué that insiders say seeks to reassure customers they are reliable suppliers of oil and are increasingly responsible toward the environment.


© 2007 Dow Jones Newswires.

Wednesday, October 24, 2007

OPEC oil output rose in October

OPEC oil output rose in October: Petrologistics
October 24th, 2007

Gulf Times/Doha

OPEC is already raising oil supply in response to record prices and in advance of its deal to increase output from November, a consultant who tracks tanker movements said yesterday.

OPEC’s 10 members subject to output limits, all except Iraq and Angola, are set to pump 27.5mn barrels per day, up from a revised 27.2mn bpd in September, said Conrad Gerber of Petrologistics.

The estimate indicates that OPEC may be relaxing adherence to supply curbs in response to a jump in oil prices, which hit a record high of $90.07 on Friday.
The group on September 11 formally agreed to lift production from November 1
“It’s a surprisingly large increase,” Gerber said. “The Saudis are obviously pushing out more crude in advance of the November increase.”

Saudi Arabia, OPEC’s top producer, is on course to lift supply to 8.95mn bpd from 8.88mn bpd in September, he said.

Other increases are coming from Iran, which is expected to raise output by 50,000 bpd to 3.95mn bpd and the United Arab Emirates, which is forecast to pump 2.65mn bpd, a gain of 60,000 bpd.

Overall output from the 12-member Opec is set to rise 500,000 bpd to 31.4mn bpd, Petrologistics said, on higher shipments from Iraq and Angola.

Iraqi output is expected to increase to 2.2mn bpd this month, up about 40,000 bpd from September, Gerber said.

Exports are rising because the country is exporting some Kirkuk crude from its northern fields, shipments that have remained sporadic since the US-led invasion in March 2003.

Angolan output, on a rising trend as new fields come on stream, is likely to climb to 1.75mn bpd from 1.6mn bpd in September.

Opec, source of more than a third of the world’s oil, agreed on Sept. 11 to raise output by 500,000 bpd from November 1 in a gesture to consumer nations worried by the economic impact of record prices.

According to Petrologistics, they are now pumping oil at the same level from which they started cutting production in 2006. Opec said the 10 were pumping 27.5mn bpd before the cutbacks began.

Oil prices declined yesterday after the Petrologistics estimate was released.
Oil prices extended losses amid worries that slower US economic growth could dampen global demand, dealers said.

Crude futures scaled dizzy heights last week owing to tight supplies and geopolitical tensions in the Middle East region.

Prices have fallen on fresh "concerns over economic growth and, in turn, oil demand growth," Goldman Sachs analysts said.

Additional downward momentum has come from Kurdish rebels offering Turkey a ceasefire on Monday.

– Reuters, AFP


OPEC Raising Output Ahead of Nov Output Hike
by Spencer Swartz
Oct 23, 2007


OPEC oil production is expected to rise this month by 500,000 barrels a day from September as the group's biggest producer, Saudi Arabia, steps up output ahead of OPEC's Nov. 1 deadline to begin providing markets with new supplies, tanker tracker consultant Petrologistics said Tuesday.

The 12-nation Organization of Petroleum Exporting Countries is expected to pump at a rate of 31.4 million barrels a day in October from 30.9 million barrels a day last month.

The group, excluding Iraq and Angola which aren't part of OPEC's quota system, are seen producing about 300,000 barrels a day more than in September at 27.5 million barrels a day, said Conrad Gerber, head of Geneva-based Petrologistics, which bases its figures on movements in the global tanker market.

"We're definitely seeing more production from the Gulf. Saudi Arabia is making more available," Gerber said, noting the kingdom is expected to pump at a rate of 8.95 million barrels a day this month, up 150,000 barrels from September.

Gerber said he didn't believe OPEC would produce in November at the same rate of increase being seen in October. "I don't think we'll go up as much... part of this is the big maintenance program in the United Arab Emirates," Gerber said.

Gerber said non-quota member Angola was expected to boost production by 150,000 barrels a day to 1.75 million barrels a day as new projects enter service in the West African nation.

Nigeria, making incremental headway into returning oil production sabotaged by militant attacks, was seen pumping about 50,000 barrels a day more in October at 2.25 million barrels a day.

Gulf countries Kuwait and the UAE were each seen producing 50,000 and 70,000 barrels a day more this month than in September at 2.62 million barrels a day and 2.65 million barrels a day, respectively.

The Abu Dhabi National Oil Co., or ADNOC, is scheduled to do maintenance at three major offshore oil fields that will ax crude production by 600,000 barrels a day from November for almost a month. State-run Adnoc, which pumps 95% of the UAE's oil, said in late September that it would meet all its term client commitments by "advancing the majority of liftings." Adnoc will do the maintenance, which has been planned for more than a year, at its Upper Zakum, Lower Zakum and Umm Shaif fields.

War-torn Iraq was expected to pump about 60,000 barrels a day more in October than last month at 2.2 million barrels a day, though this could be revised up in coming days, Gerber said.


© 2007 Dow Jones Newswires.

Monday, October 8, 2007

Saudi Arabia issues rules for succession

Saudi Arabia issues rules for succession council
By Andrew Hammond
Oct 8, 2007
(Reuters)

Saudi Arabia's King Abdullah issued rules on Monday guiding the conduct of a body set up last year to regulate political succession in the world's biggest oil exporter.

The Saudi throne has passed from one brother to the next since the death of Abdul-Aziz bin Saud, the founder of the state. With many of his 44 sons now dead or aging, power could soon move onto the next generation; his grandsons.

Western diplomats have welcomed efforts to regulate succession in the Islamic kingdom, which they say is an attempt to avoid leadership disputes, which have erupted in the past.

Unlike many Western monarchies, the throne in Saudi Arabia does not pass automatically from a father to his eldest son. Neither is it decided by seniority, but by a small group of the most powerful Saudi royals.

Saudi Arabia last year announced plans to set up a so-called "allegiance" council which would regulate succession but would not take effect until Crown Prince Sultan, heir to King Abdullah, accedes to the thrown.

Last year's statement said that if the new council rejects a nominated crown prince, it may vote for one of three other princes the king nominates for the title.

Monday's statute did not mention this but appears to ensure that power lies with the living sons of the kingdom's founder since there can be only one grandson on the council for each dead or incapacitated son of Abdul-Aziz bin Saud.

The statute, carried on the state-run SPA news agency, also allows two-thirds of the council to force out any prince who is deemed to be "in transgression" of the statutes, which say members should be at least 22 years old and have demonstrated "probity and competence".

The statute also talks of a "medical committee" but gives few details.

Within 10 days of becoming king, a new monarch must inform the committee of his choice for crown prince or ask the council to make its own nomination.

The Saud family set up Saudi Arabia in 1932 and dominates political life. The country has no elected parliament, rules by strict Islamic law that gives clerics wide powers, and bans political parties and street demonstrations.

The last succession from the late King Fahd to King Abdullah in 2005 was smooth, but there have been crises in the past.

Saudi Arabia's second king, Saud, was deposed in 1964 by his own family when he was deemed incompetent after a power struggle with his half-brother Faisal. Faisal, his successor, was shot dead by a nephew who was then declared officially as insane.

The new council will be "reappointed" every four years and the statutes can only be amended "by royal decree after the consent of the allegiance institution", SPA said.

The statute also says council decisions should be approved by the king but it is not clear what happens if the king opposes committee votes.

King Abdullah, an octogenarian, oversees a country with a growing population of 24 million, including 7 million foreigners, struggling to steer a course between tradition and modernity.

Thursday, October 4, 2007

OPEC Raises September Output

OPEC raises oil output slightly in September
By Randy Fabi
Oct 2 (Reuters)


OPEC boosted its oil production in September as crude prices soared to record heights above $80 a barrel, a Reuters survey showed on Tuesday.

Ten OPEC members bound by output targets, all except Iraq and Angola, pumped 26.8 million barrels per day, up 60,000 bpd from August, according to the survey of oil firms, traders, OPEC officials and analysts.

The majority of the increase came from the world's biggest exporter Saudi Arabia, which last month convinced fellow OPEC members to open the taps amid surging oil prices.

The Organization of the Petroleum Exporting countries, source of more than a third of the world's oil, agreed to raise production by 500,000 bpd from Nov. 1.

"With these high prices, there is no doubt in my mind that OPEC is going to jump the gun and ship out more barrels before Nov. 1, but I haven't seen any proof yet," said Paul Tossetti, director of market analysis at Washington-based PFC Energy.

Oil has traded at around $80 a barrel for the past month, surging to a record high of $83.90 on Sept. 20. Total OPEC output rose to 30.62 million bpd from 30.37 million bpd in August as Iraq and Angola boosted their supplies, according to the survey. Iraq has issued three tenders in a month to sell Kirkuk oil from its northern fields, indicating exports may be stabilising after years of sabotage kept the pipeline mostly idle.

About 7.5 million barrels have been sold via the first two tenders. "That's an extra 200,000 to 300,000 barrels a day of crude out of Iraq. That is a major change and one to watch," Tossetti said.

Angola has also ramped up output with the start of its Plutonio oilfields. Angolan state oil company Sonangol said on Tuesday it commenced first production in September, with initial output at 80,000 bpd. OPEC is expected to give Angola, its newest member, an output target from Jan. 1.

Following is crude output in millions of barrels a day.


Sept Aug Target
output output output Nov 1*

Algeria 1.38 1.38 1.357
Indonesia 0.83 0.83 0.865
Iran 3.86 3.86 3.817
Kuwait 2.41 2.41 2.531
Libya 1.7 1.7 1.712
Nigeria 2.16 2.16 2.163
Qatar 0.8 0.8 0.828
Saudi Arabia 8.7 8.65 8.943
UAE 2.56 2.56 2.567
Venezuela 2.4 2.39 2.470
OPEC-10 26.8 26.74 27.253
Iraq 2.1 1.95
Angola 1.72 1.68
TOTAL 30.62 30.37



(R)-Revised. *Output targets for November 1 were published briefly on
OPEC's website, but were subsequently withdrawn without
explanation. OPEC quotas exclude condensate and natural gas liquids and
apply to supply rather than wellhead output, defined to exclude
movements to, but not sales from, storage. Saudi and Kuwaiti
data includes Neutral Zone. Saudi data excludes oil produced for
Bahrain. Venezuelan data includes upgraded synthetic oil.

Thursday, September 27, 2007

National Australia Bank Raises Oil Price Forecasts

National Australia Bank Raises Oil Price Forecasts Through 2008
By Angela Macdonald-Smith
Sept. 28 (Bloomberg

National Australia Bank Ltd., the country's biggest lender, raised its forecasts for crude oil prices through 2008, citing the ``tight'' balance between supply and demand.

West Texas Intermediate, the U.S. benchmark oil variety, may average $66.50 a barrel this year, up from an earlier forecast of $63, while prices may average $65 next year, up from a previous forecast of $60, the Melbourne-based bank said in a quarterly report. Brent crude, a European benchmark, may average $66.90 this year, and $62.78 next year, it said.

``Reflecting the tight market conditions, forecast crude-oil prices have been revised upwards this month,'' National Australia analysts led by Gerard Burg said in the report. ``In 2008, crude markets are expected to remain tight, supported by OPEC production discipline and strong demand from industrializing nations.''

OPEC's influence over the market is set to increase, as Angola's decision to joint the group at the start of 2007 reduced opportunities for production growth outside the cartel, National Australia Bank said.

``Increasing market power for OPEC will be the most significant development in global oil markets in coming years,'' the analysts said.

Saudi Production from IEA

From IEA's September Oil Market Report (OMR), pages 21-22

The supply estimate for Saudi Arabia in July is also revised up by 50 kb/d to 8.67 mb/d and further to 8.7 mb/d for August. Stronger exports account for the July change. This report uses crude supply (comprising exports and domestic refinery throughput) as a proxy for production for Saudi Arabia and some other OPEC producers. Hence data on the JODI system showing 8.9 mb/d output for Saudi Arabia in July include substantial deliveries into storage. This report would normally account for that extra oil in subsequent months when it is exported. Nonetheless, Saudi supply does appear to be edging higher, despite buyers generally suggesting flat-term volumes for the period through October.


Thursday, September 20, 2007

New OPEC Quotas

OPEC says Saudis to assume almost two-thirds of output hike
Platts
Sept. 14, 2007


OPEC kingpin Saudi Arabia will boost its production by 327,000 b/d under
the cartel's output increase announced earlier this week, assuming 63% of the
522,000 b/d OPEC
plans to put on the market from November 1, according to
figures released by the group Friday.

The Saudis' new production allocation will be 8.943 million b/d. That is
up from August output of 8.616 million b/d, according to figures from
secondary sources used by the cartel.

OPEC, at its meeting Tuesday in Vienna, said it would raise its actual
production by 500,000 b/d from November, while setting a new output target of
27.253 million b/d.

Cartel officials said the new allocation figures would be altered from
August output numbers from secondary sources, which actually results in a
slightly higher planned output increase of 522,000 b/d.

In raising its production target to 27.253 million b/d from 25.8 million
b/d, OPEC essentially formalized 930,000 b/d of overproduction, on top of
adding the 522,000 b/d in new output.

Not all members will see an increase under the new allocations; figures
for Iran and the United Arab Emirates have decreased. Iraq and Angola are not
part of OPEC's output agreements and are not assigned allocations, though
Angola will join the allocation system next year.

Here are the new allocations for OPEC's 10 members bound by output
agreements, from November 1:


August New allocation Change
output from Nov 1
Algeria 1,354 1,357 3
Indonesia 839 865 26
Iran 3,869 3,817 -52
Kuwait 2,446 2,531 85
Libya 1,710 1,712 2
Nigeria 2,145 2,163 18
Qatar 821 828 7
Saudi Arabia 8,616 8,943 327
UAE 2,573 2,567 -6
Venezuela 2,358 2,470 112

Total 26,730 27,253 522
(All figures in '000 barrels/day)


Read more about OPEC in Platts OPEC Guide at
http://www.platts.com/Oil/Resources/News%20Features/opec/index.xml

Tuesday, September 18, 2007

Jim Jubak on OPEC

The oil-producing nations' fast-growing, subsidized economies and soaring consumption of petroleum are big reasons the rest of world is paying more for its crude.

By Jim Jubak
This time, OPEC really is to blame for higher oil prices. [original article]
Jubak's Journal 9/18/2007


In recent days, oil traders and speculators have forced the price of oil above $80 a barrel despite the Organization of Petroleum Exporting Countries' decision to raise production.

I fully expect oil prices to keep rising for the rest of 2007 and into 2008. The only thing likely to stop oil from climbing to $85 a barrel is profit-taking by speculators themselves.

Not every OPEC country is happy about this rise in oil prices. The Saudis, for example, have argued for increased production to hold down prices and keep demand from falling. But oil prices are headed up no matter what OPEC says or does.

And OPEC really doesn't have anyone else to blame for its inability to set prices. Runaway demand in the oil-producing countries themselves is the newest factor pushing up global oil prices.

Why prices are still rising

You can see where oil prices are headed in the reaction Sept. 12 to OPEC's announcement that it would increase production. Despite the news, prices went up that day. The price of a barrel of benchmark West Texas Intermediate crude climbed $1.68 to $79.91.

The next day, crude tacked on an additional 13 cents a barrel to close at $80.04. Speculators were ecstatic: Hedge funds and other traders have staked out big positions in the options market at $80 a barrel that are worth billions as oil climbs above that level.

So why were traders able to move oil prices up in the face of an OPEC production increase?

A 500,000-barrel-a-day increase in production is little more than symbolic. If the Saudis, the driving force behind this increase, were serious about holding prices at this level or driving them down, they would have pushed through an increase of 1 million barrels or more. All an increase of this size does is ratify current levels of production, which are as much as 2 million barrels a day above the official quota.

There's a huge debate inside the oil industry and in the commodity pits about the status of Saudi oil reserves. The Saudis, who produce 9.5 million barrels a day now, have announced they will boost production to 12.5 million barrels, a 32% increase, by the end of this decade and to 15 million barrels by the end of the next decade. However, some oil traders and industry analysts don't think Saudi Arabia can deliver and contend that the Saudis' big oil reserves are in far worse condition than they are letting on. The impact of any shortfall would be huge because the Saudis are the only likely global source of a major increase in oil production in the next five years, according to the International Energy Agency. Without that production increase, the world is headed for a very painful short-term oil squeeze, the agency has concluded. So you can think of energy traders' bets on oil climbing above $80 as a huge vote that the Saudis won't or can't deliver as promised.

Traders and analysts also aren't convinced that OPEC as a whole wants to increase production. The Saudis carry great clout inside that organization, but they have faced fierce opposition this year from an OPEC faction headed by Venezuela and Iran that is adamant about keeping prices as high as possible. Both countries desperately need high oil prices: Oil revenue is the only thing that stands between the regimes that rule in Caracas and Tehran and huge, possibly uncontainable protests. Anything that cuts into revenue, endangering subsidies that keep gasoline prices in Iran near 40 cents a gallon and that fund cheap food and health care in Venezuela, would be a political disaster.

In the past, Venezuela and Iran probably wouldn't have carried the day. OPEC regularly raised production to modulate price spikes, so that peak oil prices wouldn't cut into global economic growth, leading to lower demand for oil and a plunge in oil prices.

In other words, OPEC felt it was in its own interest to avoid pushing the global economy into a slowdown with unsustainably high oil prices. Sometimes OPEC got it wrong and set prices too high or moved too slowly to lower them, but heading off an economic slowdown has been a fundamental part of OPEC policy.

Why higher prices haven't cut demand

But recently, higher global oil prices haven't reduced global demand for oil or pushed economies into recession. In its Sept. 12 projections, the International Energy Agency cut its estimate of global oil demand for the end of 2007 to 85.9 million barrels a day, but that is still 1.7% higher than demand in 2006. For 2008, the agency is projecting a 2.4% increase in demand.

We're less energy intensive

You already know part of the reason for that. The developed economies of the world have become a lot less energy intensive over the past three decades. For example, in the United States, energy use per unit of economic production (gross domestic product) fell by 28% from the OPEC oil embargo of 1973 through 1995.

Higher oil prices were responsible for much of that decrease in energy use. From 1995 through 2004, energy use per unit of the economy fell an additional 26%. This time the decline had less to do with energy prices, which plunged at the beginning of that period, than with the steady shift of the U.S. economy from manufacturing to service industries. The same trend shows up in Europe and Japan.

Because these economies use so much less energy per unit of GDP than they did 30 years ago, they're a lot less sensitive to increases in energy prices. Energy is simply a smaller part of the cost of doing business in these economies for most companies.

Rising economies relatively immune

The other part of the story that you probably know involves the developing economies of China, India and the rest of the rapidly industrializing world. Between 2000 and 2006, when global oil demand grew by 8 million barrels a day, growth from China alone accounted for about 32% of the total increase, according to the International Energy Agency. (The United States accounted for 12.5% of growth.)

Energy use in these developing economies has also been relatively insensitive to rising oil prices. Some developing economies -- China is the most important example -- are mixes of command-style and free-market economies where the government sets prices and determines profit goals.

Also, these economies are showing their own improvements in energy efficiency, and, most important, when an economy is growing at 11% a year, breakneck revenue growth overwhelms concerns that higher energy costs might cut into profit margins. Total profit is growing so fast that nobody worries much if margins are falling.

Subsidies encourage higher consumption

But there's a third part of the global energy demand story that hasn't received much attention until lately -- and it explains why higher oil prices haven't slowed global economic growth more rapidly and why OPEC is getting badly beaten by the energy traders these days.

Remember that I said that China had accounted for 32% of global growth in oil demand from 2000 to 2006 and that the U.S. had accounted for 12.5%? Well, there's another group of countries that, when it comes to global growth in oil demand, has been more important than the U.S. and only slightly less important than China. From 2000 through 2006, OPEC countries themselves accounted for 22% of global growth in oil demand.

In these OPEC countries, because oil consumption is so heavily subsidized, either directly in the consumer market or through government subsidies to energy-intensive industries, the rising market price of oil isn't felt much at all. Though higher market prices for oil are putting pressure on government budgets in these countries -- those subsidies cost money -- they have almost no effect on energy consumption.

From 2000 through 2006, oil consumption by OPEC countries climbed by 1.8 million barrels a day, or 29%. Consumption is projected to climb 400,000 more barrels a day this year. OPEC consumption has been growing at 2.5 times the rate of global consumption.

By the end of this year, consumption growth in OPEC countries will just about wipe out all the 2.2 billion barrels a day in increased production that OPEC has added since 2000.

Little reason for trend to change

Traders are right to assume that this trend isn't about to reverse anytime soon. Saudi Arabia and Iran are determined to use their oil riches to build energy-intensive economies. Venezuela, Mexico and Iran use higher oil revenue to fund their governments and to subsidize prices for everything from gasoline to pharmaceuticals to food. Young and increasingly well-off populations in these countries want the energy-consuming trappings of wealth that are already enjoyed in the developed countries.

And because subsidized domestic market prices for oil and gasoline are so low in OPEC countries, there's little incentive for improving energy efficiency or switching to other fuels.

As oil prices go up, the economies of the OPEC countries boom. That increases consumption in OPEC countries, which drives up oil prices and stretches out the economic boom. Which drives up consumption. Which sends oil prices up again.

I don't know whether you want to call this a vicious or a virtuous cycle, but a cycle it is, and it is clearly pointing to higher oil prices unless the Saudis can pull a couple of million barrels of production a day out of their hats.

The oil speculators have made a pretty good bet.

Friday, September 14, 2007

OPEC's raising output

Myra Saefong's Commodities Corner
OPEC's raising output, but oil prices rally anyway
By Myra P. Saefong, MarketWatch
Sep 11, 2007

It's a bit of a mystery why crude futures closed at a record level Tuesday, even after some of the world's biggest oil producers agreed to a hefty increase in oil output levels.

At a meeting in Vienna on Tuesday, the Organization of the Petroleum Exporting Countries agreed to raise its production level by 500,000 barrels per day, effective Nov. 1.

It wasn't clear, at first, from which production level the increase would be made from.

OPEC's official output quota for 10 of its 12 members was at 25.8 million barrels per day, but the U.S. Energy Department said OPEC's actual output in July, excluding Angola and Iraq, was at 26.7 million barrels per day.

Then news reports emerged with the new official OPEC quota of 27.2 million barrels -- which implies that the cartel is recognizing that it's been producing above its target.

OPEC "'formalized' ... their current overproduction, which was roughly 900,000 barrels per day. Then on top of that, they added 500,000 barrels per day in new production," said Kevin Saville, a managing editor at Platts, who is on site at the meeting in Vienna.

"So, on its face, this wasn't just an empty gesture from OPEC," he said. "It is saying it will add 500,000 barrels per day of new oil on the market from Nov. 1."

But exactly how much of that 500,000 barrels per day will actually hit the market remains to be seen," said Saville.

Carefully worded

Obviously, OPEC raised production because members fear a slowing in the economy and they're trying to keep prices down, said Phil Flynn, a senior analyst at Alaron Trading.

But if the Fed cuts interest rates and the economy isn't slowing as much as people think, then energy demand will remain strong and the market will need more supply, he said.

Given that, the oil market probably rallied because the economy may be stronger than was originally thought, "taking away the thunder from the OPEC increase," he said.


It's all "fuzzy math," on the part of OPEC, he said. It all "comes down to what OPEC thinks their production is, versus what it actually is." And "they're admitting that they're overproducing."

The closing speech Tuesday from Mohamed al-Hamli, president of the OPEC conference and energy minister of the United Arab Emirates, seemed to be carefully worded.

"The conference decided to increase the volume of crude supplied to the market by OPEC member countries, excluding Angola and Iraq, by 500,000 barrels per day," he said.

So traders are realizing that it's not just a "paper increase," said Flynn.

Indeed, based on the news reports, "the move set for Nov. 1 is no longer a symbolic one, but an actual agreement to increase current production figures," said Neal Ryan, a manager and market analyst at Ryan Oil & Gas Partners.

"That being said, it's probably already been priced into the market at this point, as most were hoping to see a number closer to 1 million vs. 500,000," he said in emailed comments.

Difficult decision

Still, it wasn't any easy decision to make in the first place.

"OPEC was between the proverbial rock and a hard place," said James Williams, an economist at WTRG Economics. "U.S. petroleum stocks have been falling. Demand increases in the fourth quarter and without an increase, a shortfall was possible late in the year."

Williams points out that the timing of the increase for November matches the beginning of the peak demand season.

And "by increasing production, OPEC can avoid some of the blame for a recession if it comes," he said.

But at the same time, Williams warned that the market should expect the actual production increase to exceed 500,000 barrels per day.

"While high oil prices are often blamed for causing recessions, recessions usually cause a drop in oil prices and pose the greatest downside risk to price," he said.

Then again, maybe it's all about OPEC "feeling the 'subprime crunch,'" said Anthony Sabino, a professor of law at St. John's University whose legal practice includes oil and gas law.

"Clearly, the oil-exporting nations, who so desperately depend upon 'petro' dollars, euros, and yen, sense that the tightening of credit will cool off the economy and slacken demand," he said in emailed comments.

As such, "the per-barrel price of crude is too high to sustain current sales and inflows of dollars from the oil consuming nations," Sabino said.

By opening the taps wider, OPEC "seeks to drop prices in order to stay marketability in a jittery economic climate," he said.

Meaningless move?

In the end, the decision could just be a meaningless move.

OPEC's quota decision likely means nothing, said Charles Perry, chairman of energy-consulting firm Perry Management.

"Other than the Saudis, the rest of OPEC sort of set their own quotas," he said. "But most are near capacity, so they do not have room to go any higher."

"The real story in all of this is the world is at or near maximum capacity, and will be until a lot of additional production is developed," said Perry.

If OPEC's talking about a target of 27.2 million, then it's already close to its capacity, excluding the Saudis, he said. "Just about everyone is skeptical of OPEC increasing their production very much" with members near their peak production.

Wednesday, September 12, 2007

OPEC quota level vs. production

OPEC quota level vs. production

The production values for the remainder of 2007 are as follows:
August through October are given the same level as July(26.7 mbpd). November and December are July's level plus 500,000 barrels per day (amount of September 11th effective increase).




Revision: According to the Marketwatch report I have posted above, OPEC has posted an official quota of 27.2 mbpd for November. There might be more revisions coming as the news reports get sorted out.

This article from Rigzone and Platts has a table with August production numbers. It shows total OPEC-10 production as 26.79 mbpd.

Monday, September 10, 2007

Oil Rises to 6-Week High

Oil Rises to 6-Week High on Signs OPEC Will Keep Output Quotas
By Mark Shenk
Sept. 10 (Bloomberg)


Crude oil rose to a six-week high on speculation that OPEC ministers will maintain production targets when they meet tomorrow in Vienna.

Representatives from members including Iran, Kuwait and Qatar said in the past week there's no need to increase quotas that were set last year. Some Persian Gulf producers are discussing an increase, two delegates said today.

``The consensus remains that OPEC will do nothing tomorrow,'' said Peter Beutel, president of Cameron Hanover Inc., a New Canaan, Connecticut, energy consultant. ``There was fresh discussion about a production increase today, but opposition from Iran and Venezuela is too strong for this to occur.''

Crude oil for October delivery rose 79 cents, or 1 percent, to settle at $77.49 a barrel at 2:49 p.m. on the New York Mercantile Exchange. It was the highest close since July 31. Prices are up 17 percent from a year ago. Futures touched $78.47 at 3:54 p.m. in New York, the highest intraday price since reaching a record $78.77 a barrel on Aug. 1.

`Bullish Mode'

``Technically the market is still in bullish mode,'' said Ric Navy, a broker at BNP Paribas SA in New York. ``We're unable to maintain downward momentum. There were many opportunities for the bears to take prices lower but they failed.''

A 500,000 barrel a day quota increase will be discussed during the meeting and the timing of any increase remains undecided, one of the delegates said. The second delegate said he doubted other OPEC members would agree to such an increase. Both officials declined to be identified before the start of official talks at the group's Vienna headquarters.

``There was speculation that Kuwait, Saudi Arabia and/or the Emirates would ride to the rescue of the Fed and propose that quotas be increased,'' Beutel said. ``If they raise production the Fed can forget about inflation and concentrate on fighting what may turn into a recession.''

Two Federal Reserve bank presidents suggested that the U.S. economy is weakening after the labor market shrank in August, and that the housing market shows no sign of recovery.

`We Can Wait'

``There is no reason to increase output; the market is well supplied,'' Venezuelan Oil Minister Rafael Ramirez said today in an interview. ``We can wait until December.''

Any quota change would be viewed as a surprise. All 23 oil traders and analysts in a Bloomberg survey last week said they expect OPEC to leave its collective target unchanged.

``It's odd that the Saudis are completely silent ahead of this meeting,'' said Christopher Edmonds, the managing principal of FIG Partners Energy Research & Capital Group in Atlanta. ``I think it is likely they will float a proposal to increase quotas, probably 500,000 to 1 million barrels a day. While I don't think it goes anywhere, it will focus the discussion on the possibility for quota increases later in the year.''

Saudi Arabian Oil Minister Ali al-Naimi declined to comment to reporters in Vienna this morning. Saudi Arabia is the world's biggest oil exporter and the most influential member of OPEC.

OPEC wants respectability

The Energy Report
Phil Flynn
September 10, 2007


OPEC wants respectability. All right Ali, here's your chance. In the past I have compared Ali al-Naimi, the de Facto leader of the OPEC cartel, to Alan Greenspan when he was Federal Reserve Chairman. Let’s face it, Mr. Naimi has relished his role as sort of the central banker of oil. Mr. Naimi is the Saudi Oil Minister and in truth is the most influential man in the OPEC cartel. He has tried to bring a certain degree of respectability to the business of price-fixing and collusion.

Of course if you want to be compared to Alan Greenspan you have to learn to make the tough decisions and inspire others to go along with you. There are reports that Mr. Al-Naimi actually favors an increase in oil production at tomorrow's OPEC meeting but does he have the will and power to make his case to the other members who fear an output increase? There is little doubt that Ali Al-Naimi is an impressive character but does he have what it takes to lead at this important moment in OPEC history?

OPEC members we have heard overnight such as Kuwait, Iran, and Libya oppose an oil output increase. Can he make the tough call and get the rest of the cartel to realize that this might be the most important decision the cartel may make?

If you want to act as a central banker of oil what you should do is add more oil to the market in signs of economic stress. If there is more oil on the market oil prices should go lower and it should make it easier for the economy to avoid a recession. And with the US economy in scary shape after the much worse than expected jobs report last Friday and the chances of a recession rising does Mr. Naimi have the ability to react to an obviously dangerous economic situation?

Yet the cartel has other ideas. OPEC President Mohammad al-Hamli says that despite the tightening of credit in the US the world economy was growing strongly and should continue into next year. But is he as good a judge about the heath of the economy as al-Naimi? Hasn’t much of the growth around the world been fed in part by the US consumer? And wouldn’t the US consumer be better off if the price of oil was trading lower than the $76.00 per barrel area? Why does OPEC not see that a US recession would be a devastating blow to the prospect for oil demand. Is it just greed or is it fear?

Well it’s probably both but the fear was best expressed by Qatari Oil Minister Abdullah bin Hamad al-Attiyah who asked, “What is an increase in oil production, and nobody will buy it?".

In other words, they fear a price collapse if they raise production and demand still falls. They still have nightmares of when they raised production ahead of the Asian financial crisis that nearly bankrupted many in the cartel. In the long run that price drop helped create an environment that lead to one of the largest price run ups in the history of the world oil markets.

Why Saudi Arabia Favors Increasing OPEC's Output

Why Saudi Arabia Favors Increasing OPEC's Output...Officially
September 10, 2007 11:20:AM ET
By Tom Waterman
http://www.oilintel.com/


There's an increasing buzz surrounding the OPEC meeting in Vienna tomorrow that Saudi Arabia -- easily the most influential of cartel members, will make a pitch to increase output in the fourth quarter.

Practically every other cartel member, addicted to the petro-dollars now flowing through its coffers, does not agree. They all point out that crude oil supplies are growing and that any increase in OPEC output would collapse prices.

It's all a mirage anyway as crude supplies are building and OPEC is selling beyond output quotas, by anywhere from 650,000 to 850,000 barrels per day. So what's all the fuss?

We need to go back 10 years or so when OPEC looked at the commodities markets as just another financial instrument that would bow to its will. They never imagined that the price of oil would be set daily in New York or London, instead of Riyadh or Tehran.

Saudi Arabia understands that the explosion in electronic trading, particularly ICE in London, where regulations and oversight are virtually non-existent, speculators can control the price of oil. All it takes is enough money to force a position, and the staying power to see it through, and influence the rest of the speculative community.

There are rumors that some OPEC members, through third party agents, are in fact participating in the London Brent futures market. The suspects are Iran, Venezuela and perhaps Nigeria. What better way to push markets in a favorable direction, using the petro-dollars consumers pay.

It's not clear if Saudi Arabia participates, but it would not be surprising if all OPEC members have a role in conjunction with huge banking firms in manipulating oil prices. The financial ability of OPEC members cannot be underestimated. It would explain how prices can remain artificially high for such an extended period of time.

It also makes sense from the fundamental side. OPEC's power to influence oil prices relies on a joint commitment to restrict supplies in order to prop up prices. The problem with this method is the cartel itself. They simply cannot present a unified front when cutting production. Simply put, they cheat. Some more than others, but every OPEC member will not turn away buyers, especially with prices as high as they have been for the past two years.

There are many reasons the Saudis would favor an increase in output, not the least of which is a means to protect market-share as glut conditions approach. Saudi Arabia is concerned that it is losing ground in some of its Asian markets, and it wants to protect its current U.S. market-share, among other markets.

Through the first six months of 2007, Saudi Arabia supplied 10.7 percent of U.S. imported crude oil. They would prefer to supply about 11.5 percent, a share achieved just once in 2007, in January. In May and June, Saudi Arabia supplied 11.4 percent of U.S. imported oil -- acceptable levels.

However, two countries currently exempt from output restrictions are Iraq and OPEC's newest member -- Angola. Iraq will not have a quota until it can sustain production levels at predictable rates, which might not be for another 5 years. Nevertheless, Iraq is gradually increasing production and its share of the U.S. import market is growing. In May, Iraq supplied the U.S. with 10.6 million barrels of crude oil, or 2.4 percent of total imports. In June, Iraq supplied the U.S. with 17.2 million barrels, or 4.2 percent of total U.S. imports.

Saudi Arabia, while sustaining an 11.4 percent of the U.S. market in May and June, it supplied 4 million less barrels of crude in June than in May.

Angola, the other OPEC member that has no output quota, has been erratic in its supplies to the U.S. The range has been a low of 12.9 million barrels in February (3.8 percent) to a high of 21.4 million barrels in May, or 4.9 percent of the U.S. import market. Angola has also competed successfully for some of Saudi Arabia's Asian customer base.

This is the main reason that Sheik Ahmed Fahd Al Ahmed Al Sabah, who is also Kuwait's oil minister, had talks with Angolan officials about how they will be assigned a quota in the near future. Just as they are ready to bring new production online in early 2008, Angola does not like the timing of being assigned a quota. It seems that the prestige of becoming an OPEC member might not be worth the potential financial sacrifice.

We expect that a quota will be postponed until the second quarter of 2008, after new deepwater production is flowing and its levels have risen.

But there is another reason that Saudi Arabia might favor increasing production in the fourth quarter. Prices are too high. The Saudis always look beyond today and tomorrow. They realize that prices approaching $80 per barrel, while offering tremendous profits, also carry a risk. The risk is a weak U.S. economy that seems to heading toward a possible recession, which will mean a broad worldwide economic slowdown. Perhaps even more important than the Federal Reserve reducing interest rates by a half point would be oil prices that fall to the low $60s.

Saudi Arabia understands that current prices are artificially high, and simply making statements that there is plenty of crude oil available is not enough to overcome the powerful spec money that controls the price of oil. Something else must be done to curb the speculative direction oil is tracking.

There are other reasons to bring prices down. The political battle of wills between Iran and Saudi Arabia as each country tries to influence policies in Iraq should not be underestimated. Iran needs money as it pours support into Shiite dominated Iraq. Saudi Arabia provides cash for the Sunni contingent, trying to carve out its slice of Iraq. The Saudi vault is virtually limitless while Iran works paycheck to paycheck. Every petro-dollar Iran can grab, a certain percentage will work to extend its influence.

As Iran's influence in the region grows, it undermines the Saudi royal family, and beyond all other factors, the royal family wants to remain in power.

This is why I suspect that Saudi Arabia will try to impose its will on the OPEC meeting tomorrow. It's not clear if the Saudis have the will to demand a direction against price hawks like Iran, Venezuela, Libya and Nigeria, but the signals are that the Saudis will either nudge the cartel to announce increases in the fourth quarter. The alternative is that Saudi Arabia could open the spigots and single handedly increase worldwide supplies.

In a dangerous time, Saudi Arabia seeks to limit Iran's influence, and now may be the moment to do so.

Wednesday, September 5, 2007

Saudi Crude Oil Market Share

Saudi Arabia Crude Oil Market Share Chart 1974 - 2007




data source: EIA Crude including lease condensate monthly numbers

Saudi Aramco Changes Oil Prices

Saudi Aramco Cuts Oil Prices to U.S.; Raises for Asia, Europe
By Nesa Subrahmaniyan
Sept. 5 (Bloomberg)


Saudi Aramco, the world's largest state oil company, cut prices of its crude oil
to be exported to the U.S. in October. It raised prices for Asia and the
Mediterranean, while increasing for two grades to Europe.

Aramco cut
prices of its Arab Light, Arab Medium and Arab Heavy grades it sells to the U.S.
by between 5 cents and 90 cents a barrel, the Dhahran, Saudi Arabia-based
company said in a faxed statement today.

Prices to the U.S. are set
against the West Texas Intermediate benchmark. U.S. refiners would have to pay
minus $5.10 a barrel for Arab Light, minus $7.65 a barrel for Arab Medium and
minus $10 a barrel for Arab Heavy in October. The oil producer kept the discount
of its Extra Light grade unchanged to the U.S. at minus $2.65 a barrel.

For Asian customers, Aramco said it raised the prices of all its grades.
It raised Arab Super Light by 50 cents to a premium of $6.45 a barrel, and the
premium on Extra Light was increased 75 cents to $4.25 a barrel.

Aramco
boosted the premium on Arab Light by 60 cents to $1.35 a barrel, and narrowed
the discounts for Arab Medium by 30 cents to minus $1.05 a barrel and by 25
cents to minus $3.35 a barrel for its Arab Heavy grade. Asian prices are quoted
in relation to the average of Oman and Dubai grades, the two Arabian Gulf
benchmarks used by Asian oil refiners and traders.

Refiners in the
Mediterranean would have to pay more for most Saudi Arabian crude oil shipments
in October. The premium for Arab Extra Light was raised by 40 cents to $1.20 a
barrel, while the discounts for Arab Light and Arab Medium widened by 35 cents
and 5 cents to minus $2.15 a barrel and minus $3.65 a barrel. The discount for
Arab Heavy was cut further by 25 cents to $5.30 a barrel.

European
Prices

For its European customers, Aramco raised prices for shipments of
Arab Extra Light by 20 cents to $1.10 a barrel and narrowed the discount for
Arab Light by 15 cents to minus $2.45 a barrel, the oil producer said. The
discounts for Arab Medium and Arab Heavy grades were widened by 10 cents and 30
cents to minus $4.10 a barrel and minus $5.55 a barrel.

Mediterranean
and European prices are expressed as a differential to Intercontinental
Exchange's weighted average of North Sea Brent crude oil. All prices are
free-on-board, where the buyer has to pay for shipping costs.

Friday, August 24, 2007

Saudi Arabia is top oil supplier to China

Saudi Arabia is top oil supplier to China
BI-ME and Bloomberg
22 August 2007



Saudi Arabia was the top supplier of crude oil to China in July, beating Angola, Oman and Russia as the Middle Eastern country increased exports to gain from demand in the world's fastest-growing major economy.

Saudi Arabia, the world's biggest oil producer, exported 2.33 million metric tons of crude oil to China last month, about 548,677 barrels a day and 57% more than the same period in 2006, the Beijing-based Customs General Administration said today.

Angola, the second-largest supplier to China in July, shipped 2.2 million tons, a 28% increase from last year.

China's crude oil imports surged 39% to a record in July, according to customs data released earlier this month. Oil imports by the world's second-biggest energy user have tripled in the last five years as production from domestic fields failed to keep pace with demand.

Oman, Russia and Iran were among China's top five suppliers in July, shipping 1.56 million, 1.27 million and 1.24 million respectively.

Saudi Arabia was also China's biggest crude supplier in the first seven months of this year as sales from the kingdom increased by 6.8% to 14.32 million tons.

Imports from Sudan surged more than 12-fold to 1 million tons in July after China National Petroleum, the country's largest oil producer, increased output of the Dar Blend crude oil from its production-sharing field in the African nation. The field started production last August.

China imported 14.83 million tons of crude last month. Shipments in the first seven months rose 15% to 96.37 million tons.

Monday, August 20, 2007

Aramco invites engineering bids for refinery

By Oliver Klaus
Aug 20, 2007
DUBAI (MarketWatch)


Saudi Arabian Oil Co. has invited engineering firms to bid for a contract to help it build an estimated $8-billion refinery in eastern Saudi Arabia, people familiar with the plans said Monday.

Saudi Aramco, the world's largest national oil company, has invited international engineering companies to bid by Sept. 15 for the contract to carry out early engineering for and manage the construction of the new refinery, the sources said.
The plant, known as East Coast refinery, is the fourth new facility planned in the kingdom and will boost total domestic crude oil refining capacity to above 3.5 million barrels a day by 2012, more than double the U.K.'s.

The refinery, due for completion around late 2011, will process 400,000 barrels a day of Saudi crude and will be at Ras Tanura on the Persian Gulf, already home to the country's largest refinery with a capacity of 550,000 barrels a day, the sources said.

Aramco will meet selected contractors Monday for a project briefing in Bahrain, the people said.

Companies including KBR Inc. KBR, Foster Wheeler Ltd. FWLT, and WorleyParsons Ltd. (WOR.AU) have bid for similar contracts in the kingdom.

The new project is aimed at meeting fast-growing demand for refined products from the local power and industrial sectors
.

Tuesday, July 31, 2007

OPEC Posts Record 2006 Oil Revenue

OPEC Posts Record 06 Oil Revenue; Lags Western Cos by Half
by Spencer Swartz
Jul 31, 2007

The Organization of Petroleum Exporting Countries posted nominal record revenue of nearly $650 billion last year on high crude prices and increased oil production, although its sales were just half those of the top U.S. and European energy firms, the producer group said in a report released Tuesday.

But in an indication as to why it may be keeping a tight rope on future production capacity, the report showed OPEC's base of economically recoverable oil reserves last year was flat if new, higher estimates from troubled OPEC producer Venezuela are stripped out, the worst growth in this key metric in recent years.

The world's top five publicly traded oil companies, led by ExxonMobil Corp. (XOM) of the U.S., collectively raked in total revenue last year of $1.36 trillion, up 6% on the year, OPEC said in its annual statistical report released Tuesday.

The contrasting numbers underscore the financial muscle the top Western oil companies have relative to OPEC states even though those same states control nearly three-quarters of the world's proven oil reserves.

Such was the tailwind of higher oil prices that Saudi Arabia, OPEC's biggest producer and exporter, saw its oil revenue jump a fifth to $193.7 billion, even though it pumped and exported less oil last year compared with 2005, OPEC said.

Oil prices touched a record high of near-$79 a barrel last July.

The OPEC sales numbers, representing 22% revenue growth, may stoke anger by consumers shouldering high energy costs caused by tight gasoline supplies, unexpected production shutdowns in Nigeria, and OPEC production cuts the past year.

U.S. lawmakers have proposed a largely symbolic bill that would permit law suits against OPEC's 12 members under U.S. antitrust laws.

Companies such as ExxonMobil and Royal Dutch Shell PLC (RDSB.LN) typically have more business units and operate in more regions of the world compared with most OPEC states, although this has been changing the past decade, but they own just a small percentage of the world's proven oil reserves.

OPEC's annual report didn't disclose net profits, but OPEC states earn handsome returns on the oil they produce because of low production costs.

"There might be some who are critical of these numbers, but the money OPEC is earning allows these countries to invest in new energy projects, like refineries, and import more goods," said Manouchehr Takin, senior analyst at the Centre for Global Energy Studies in London. OPEC nations imported $447.3 billion worth of goods last year, up 13% on the year.

The report also didn't disclose how much OPEC states invested in new exploration programs last year, although OPEC Secretary General Abdalla Salem el-Badri told Dow Jones Newswires in June that members had earmarked $130 billion-worth of capacity expansions that would add a net 6.7 million barrels a day to current oil output by 2012.

Reserves Languish

Venezuela, where oil output has languished this decade because of underinvestment, has tightened its grip the past five years on foreign operators with new taxes and operating restrictions, and few energy analysts believe the country can tap its costly and difficult-to-exploit heavy oil reserves without foreign technology and know-how.

After relatively stable to modest increases the past decade, Venezuela's proven oil reserves jumped last year by nearly 9% to 87.04 billion barrels, according to OPEC's report. It didn't explain why.

But backing out much of that rise because of the state of Venezuela's energy sector, OPEC's total proven oil reserves rose by a mere 0.2% last year, the lowest rate of increase this decade.

Saudi Arabia's crude asset base changed little at about 264.3 billion barrels, although the kingdom is currently investing billions of dollars to boost its production capacity to 12.5 million barrels a day by 2009, up about 11% from current levels.

Including the big additions of heavy oil Venezuela added to its reserves last year, OPEC's proven oil reserves in 2006 rose 1% to 922.5 billion barrels, representing just over 77% of the world's total.

OPEC's daily production last year averaged 32.07 million barrels, up 3.2% on the year. Saudi Arabia's daily output averaged 9.208 million barrels, about 145,400 barrels fewer than in 2005, while Saudi exports averaged 7.029 million barrels, nearly 180,000 barrels less than last year.


© 2007 Dow Jones Newswires.

Aramco to invite bids for Manifa developments

Saudi Aramco to invite bids for $10 billion Manifa developments
Business Intelligence Middle East
July 31st, 2007


SAUDI ARABIA. Saudi Aramco is expected to invite companies in August to help develop Manifa oil field, with a potential production of 900,000 barrels of oil a day, sources familiar with the company's plans said earlier this week.

Aramco, the world's largest oil supplier, plans to invite prequalified companies to bid for an estimated US$3 billion worth of contracts on the company's largest-ever offshore project.

The estimated US$10 billion Manifa development programme aims to add 900,000 barrels a day of heavy crude, 120 million cubic feet a day of gas and 50,000 barrels a day of condensate to Aramco's production by mid-2011.

Manifa's heavy crude will be exported from Aramco's Al Juaymah and Ras Tanura terminals in Eastern Saudi Arabia. The gas and the condensate will be processed at the Khursaniyah gas plant.

The project also includes construction of four pipelines, a water supply system and oils and gas processing facilities.

The tender documents for the project were originally due to be released in June or July but have been delayed without explanation, sources familiar with the Aramco's tender told Dow Jones Newswires.

Companies including Bechtel Group, Fluor Corp, JGC Corp and Technip in late May submitted prequalification documents to Saudi state-owned company. They are still waiting for final to bid, sources said.

In February, Aramco awarded an estimated US$1 billion contract to Belgium contractor Jan De Nul for the Manifa project's offshore portion, covering dredging works in the Persian Gulf.

Middle East oil producers are spending income generated from four years of high oil prices on expanding and upgrading their crude oil production capacity to meet rising global demand, particularly from fast-growing Asian economies.

Saudi Arabia is the world's biggest oil exporter. The Kingdom is working to increase current output of almost 11.0 million barrels a day to 12.5 million barrels a day by 2009.

Ghawar Production Profile

Ghawar Production Profile 1960 - 2007 Chart
Saudi Arabia, Ghawar, Oil Production, OPEC, oil, Peak Oil, chart, graph


Friday, July 27, 2007

Gulf Oil Revenues to Stay in Dollars

Gulf oil revenues to stay in dollars
Reuters
26 July 2007


Core Gulf producers receive 100 % of their oil revenues in dollars and politics makes it unlikely that will change despite the U.S. currency's weakness, analysts said on Wednesday.

OPEC members Saudi Arabia, the United Arab Emirates and Kuwait between them pump about 13.5 million barrels per day of oil, nearly 16 % of the world's supply.

Record revenues from high prices have fuelled an economic boom in the region, but the weak dollar has eroded oil producers' purchasing power in currencies not pegged to the U.S. greenback. The dollar hit an all-time low against the euro earlier this week.

The potential political fallout from the impact on the dollar of any change would likely keep the region's oil sales in the U.S. currency, said Steve Brice, regional economist at Standard Chartered.

"The U.S. would probably be concerned about major producers doing this," said Brice. "Currency reform is much less politically sensitive. It's another thing to move oil receipts away from dollars. That's a very big step."

Kuwait allowed its dinar to appreciate 1.7 % against the dollar on Wednesday, encouraging investors to bet that other Gulf Arab oil producers would review their pegged exchange rates.

But while Kuwait takes small steps to shield its economy from the dollar's weakness, oil revenues in the world's seventh-largest oil exporter will stay tightly bound to the U.S. currency.

"All our oil revenue is in dollars and there is no plan to change this," said a Kuwaiti source.

OPEC's second largest producer Iran caused a stir in financial markets when it asked Japanese oil buyers to pay in yen rather than U.S. dollars two weeks ago. That move was in part politically motivated as the row drags on with the United States over Tehran's nuclear ambitions.

Libya and sometimes Syria also ask for payments in other currencies, an industry source said. But Gulf Arab producers have shown little interest.

"ENTRENCHED IN DOLLARS"

Analysts said it would make economic sense for producers to diversify payment denominations, as it would reduce the volatility associated with the close ties to one currency and better reflect the region's trade relationships.

"The trade partners of the big oil producers have changed," said Julian Lee, senior energy analyst at London's Centre for Global Energy Studies.

"The European Union and Asia are bigger partners than they were and that would suggest the idea of diversifying revenues to take that into account. But breaking the price of the oil and the dollar may be a step too far."

Kuwait gets about 38 % of imports from the euro zone, the UAE 39 % and Saudi Arabia 35 %, according to Calyon.

Anything that weakens the dollar will also hurt the region's massive dollar-weighted investments.

Gulf Arab governments save most of their oil wealth in investment funds, which do not make public the currencies they hold.

Standard Chartered estimates Gulf Arab central banks hold $75 billion to $80 billion in foreign exchange reserves, while $1.5 trillion is in public sector investment funds.

All the major benchmarks that producers use for oil contracts are set in dollars, which also makes it difficult to use any other currencies.

"The oil market is entrenched in dollars," said one industry source. "People are buying oil years out in dollars and it is difficult to see any of those people unwinding their positions and buying oil in any other currency."

IEA Oil Market Report July 2007

Saudi Arabian crude supply is revised up to 8.7 mb/d for May, with a modest cut to below 8.6 mb/d estimated for June. Latest available JODI (Joint Oil Data Initiative) data are backed up by upwardly revised tanker sailing data for May. Weaker earlier May estimates had been based on lower domestic refinery runs due to refinery maintenance. While higher June refinery runs are implied by lower anticipated refinery maintenance, early indications are of an offsetting cut in crude exports. June estimates, as for all the OPEC countries, remain subject to verification as more complete tanker sailing data become available. However, comments from Saudi Oil Minister Naimi in early July tended to reinforce perceptions of production around 8.6 mb/d. Nor has there been any sign of significant change in Saudi production policy for July and August, with term liftings reportedly remaining broadly stable at June levels.

Crude capacity for Saudi Arabia is seen by this report rising to 10.9 mb/d by end-2007 and 11.4 mb/d at end-2008. The Khursaniyah project is likely to start up in December 2007, reaching 500 kb/d of Arab Light capacity by 2008, alongside some 300 kb/d of gas liquids. Initial volumes of new extra light crude are also expected from the Shaybah field expansion and the Nuayyim project by the end of 2008. The two fields combined will eventually add a gross 300 kb/d to Saudi crude capacity. Capacity additions in Saudi Arabia for now are focussed on lighter/sweeter crude grades, before the next major heavy/sour increment expected from the Manifa project from 2011.
IEA Oil Market Report July 2007, pg. 20

Thursday, July 26, 2007

OPEC oil output to rise in July

OPEC oil output to rise in July:
Petrologistics
Jul 25, 2007

OPEC oil output is expected to rise this month due to higher supply from members including Nigeria, Iraq and Angola, a consultant said on Wednesday.

OPEC's 10 members subject to output limits, all except Iraq and Angola, are expected to pump 26.9 million bpd, up from 26.8 million bpd in June, said Conrad Gerber, head of Petrologistics, which tracks tanker shipments.

The estimate, while showing rising supply in some OPEC countries, indicates top world exporter Saudi Arabia is keeping a cap on output in spite of a jump in oil prices towards a record high above $78 a barrel.

"There's no major opening of the taps," Gerber said. "They fear that if they opened the taps, prices would slide."

Nigeria is raising supply in July by about 100,000 bpd to 2.12 million bpd, Gerber said. The increase reflects fewer disruptions to the country's oil industry from militant attacks in the Niger Delta.

Iranian oil output is also on the increase -- climbing by 50,000 bpd to 3.95 million bpd, according to the Geneva-based company.

Overall supply from the 12-member Organization of the Petroleum Exporting Countries is set to rise 300,000 bpd to 30.7 million bpd, Petrologistics said, as Iraq and Angola pump more.

Iraqi output is on course to reach 2.08 million bpd, up from 1.94 million bpd in June, because the country is exporting some Kirkuk crude from its northern fields.

Storage tanks at the Turkish port of Ceyhan receive sporadic deliveries of Kirkuk by pipeline from Iraq's northern oilfields. Iraq sold 3 million barrels for shipment in July, the first such sale since January.

Angolan output, rising steadily as new fields off the country's coast come on stream, is on course to climb by 30,000 bpd to 1.69 million bpd in July.

By contrast, output in Saudi Arabia, OPEC's largest producer, is expected to hold steady at 8.6 million bpd, Petrologistics said.

OPEC, source of more than a third of the world's oil, agreed to curb supply by 1.7 million bpd, or about six percent, last year in two steps. The second stage took effect from February 1.

Despite July's rise from the 10 members party to the output curbs, output remains lower than when OPEC started cutting production in November. OPEC said the 10 were pumping 27.5 million bpd before the cutbacks began.

The exporter group is next scheduled to met in September to decide production policy.

Monday, July 23, 2007

OPEC: Fair Oil Price $60-$65

OPEC: Fair Oil Price $60-$65/Bbl; No Need to Up Output
by Ayesha Daya, Dow Jones Newswires
FWN Financial News 7/23/2007
URL: http://www.rigzone.com/news/article.asp?a_id=47988


The Organization of Petroleum Exporting Countries' head of research said Monday that a fair price for crude oil was between $60 and $65 a barrel, but said there was "no reason" for the group to raise output when it meets in September for its biannual gathering.

"I said in March that a fair price for oil was between $60 and $65. I still think this," Hasan Qabazard, OPEC's research director, told Dow Jones Newswires by phone.

He said he wasn't referring to any particular crude. "This is a range to account for the different crude qualities, not for one crude in particular," he said.

Oil prices have been climbing steadily this summer, touching 11-month highs of $76 a barrel last Thursday on falling gasoline stocks in the U.S. and strife in oil-producing Angola.

Crude fell slightly Monday on profit-taking by traders, with light crude on the New York Mercantile Exchange trading down 40 cents at $75.39 a barrel Monday, but the current price is at least $10 a barrel more than what Qabazard sees as fair. Brent crude is trading at an even higher level at more than $77 a barrel.

There are no signs that OPEC will act to contain the rally by deciding, when it next meets, to bring more crude onto the market.

"Now the price is quite high," Qabazard said. "But it has a premium in it because of refinery bottlenecks, and speculative money coming into the market," he said.

In this context, there is "no reason" for OPEC to decide to raise output at their next meeting in September, Qabazard said.

"We still believe there is no reason to raise production, because there is enough crude in the market and no takers for the crude. It will only go into stocks," he said.

Copyright (c) 2007 Dow Jones & Company, Inc.

Saturday, July 21, 2007

Saudi 2010: Empire in the Making

Saudi 2010: Empire in the Making
by Mohammed Aly Sergie
July 15th, 2007


[...]The recent oil boom has filled the coffers of all oil producing countries, and the largest producer received the greatest influx. According to the Economist Intelligence Unit, Saudi's GDP has nearly doubled since 2002 from US$118.6bn to US$347.3bn in 2006. While analysts debate the ‘peak oil' theory and look towards alternative sources of energy, Saudi Arabia continues to expand its current capacity and explore for more wells. With around 25% of global oil reserves and plentiful natural gas reserves, Saudi Arabia ranks fourth in the world in natural gas reserves, and Aramco claims that only 15% of the country has been "adequately explored for gas". Few analysts predict that oil prices will drop below US$60 per barrel over the next two years (oil is currently US$77 per barrel); oil and gas will remain the main source of revenue and the economic driver in the Kingdom.

The only player in oil production in Saudi Arabia is state-owned Saudi Aramco, the world's largest oil exporter. The company has been managing oil exploration and extraction for the Kingdom over the last 70 years and has become one of the largest state-controlled companies in the world.

In 2006, Saudi Aramco markedly enhanced its operations to achieve its goal of increasing crude oil production capacity to 12.5 million barrels/day (b/d) by the end of the decade. Underdeveloped fields throughout the Kingdom are coming on stream within the next two years which will triple the number of oil rigs in operation and should increase production by two million b/d.

Saudi Aramco is also increasing its gas exploration efforts. A myriad of onshore and offshore exploration and extraction is ongoing, which will go far to feed the voracious appetite for natural gas of power, desalination and petrochemical plants.

Natural gas is what brings us to another Saudi giant: Saudi Basic Industries Corporation (SABIC). While Aramco will invest nearly US$70bn in the petrochemicals industry in the next five years (the company recently teamed up with Dow Chemicals to build a US$20bn plant in Ras Tanura), SABIC has been a leader in the petrochemicals sector over the past 30 years, and is the largest non-oil producing company in the Middle East.

Not only is SABIC a regional giant, it is also a major global player. The company is among the world's market leaders in the production of polyethylene, polypropylene, glycols, methanol, and fertilisers, as well as the fourth largest polymer producer. Fuelled by impressive profits - profits rose to a record US$5.4bn in 2006, a 6% increase on 2005, while first quarter 2007 profits remained strong at US$1.7bn, an increase of 50% compared to the same period in 2006 - SABIC has gone on an aggressive acquisition spree[...]


full article

Opec 'needs to boost output in second half'

Opec 'needs to boost output in second half'
21-07-2007

Opec should increase crude oil production in the second half of the year in a bid to alleviate high prices, the head of the US Energy Information Administration Guy Caruso said.He warned that inaction by the Organisation of Petroleum Exporting Countries could cause global inventories to fall too low. "They wouldn't be dangerously low, but low enough to apply an upward pressure on prices," Caruso said on the sidelines of a meeting of the National Petroleum Council."Based on our demand numbers, which may be slightly higher than Opec's...is that we thought we needed more production in the second half of the year or we were going to have very low inventory," Caruso said. Energy Secretary Samuel Bodman said earlier on the sidelines of the NPC meeting that he was concerned about high oil prices and the possibility that Opec might not increase supply.He said, however, that he was keeping an open mind about how much, if at all, Opec should increase output given that US market tightness had been more about low refining capacity that crude supply. "That may be changing," though, he added.While analysts suspect the group has delivered on about 1 million barrels a day of that cut, the output decrease has helped push oil prices higher at a time when strong demand is already providing support. Benchmark crude futures on the New York Mercantile Exchange ended up Opec this week issued fresh forecasts for oil demand and supply that show the implied daily consumption for its members' oil in the final three months of this year would outstrip their current supply by a hefty 1.15 million barrels.


(Source: Gulf News)

Wednesday, July 4, 2007

BP's recent production data

BP's recent production data, and a different view of future world oil production trends
by Tom Standing

http://www.energybulletin.net/31585.html

Saudi Arabia and OPEC: First off, many people look at the recent trend of Saudi Arabian production and have expressed suspicion that the decline may be geologically based, rather than Saudi Arabia maintaining a balance between supply and demand. The statements and actions of OPEC over the last several months have made it clear that they are taking oil off the market in order to defend $60 oil. (The recent price for “OPEC Basket” oil was around $67.) Saudi Arabia is still the premier swing producer, maybe the only OPEC member who can vary production rates at their discretion. My guess is that this is a market-related reduction and that they could return to their high point of late last year and sustain that rate for many years. They have numerous projects on the board to raise productive capacity, so I would not be surprised if they eventually reach and sustain 10 million b/d. How much higher can SA go? God only knows; not even the most analytical Saudi oilmen can say with certainty. The timing of Saudi's return to producing at capacity, and their future development of capacity, depends on world demand, the ability of non-OPEC producers to increase capacity, and the price that OPEC chooses to defend.

Sunday, July 1, 2007

Saudi production vs. OPEC quota 2001 to 2007 chart

2001 to 2007 chart of Saudi oil production vs. OPEC quota.


Saudi production versus OPEC quota

2004 to 2007 Chart of Saudi Arabia's oil production with OPEC quota.

Friday, June 15, 2007

OPEC to Maintain Its Current 30mbpd Output Level

by Adam Smallman
Dow Jones Newswires
Jun 15, 2007


The Organization of Petroleum Exporting Countries said Thursday that there was no need for the group to inject further oil supplies into the market in the face of rising demand, an implicit rebuke to the International Energy Agency's call this week for urgent new supplies from the group.

In an unusual statement well ahead of its formal policy meeting Sept. 11 in Vienna, OPEC Secretary General Abdalla Salem el-Badri said 12-member OPEC, which currently meets 35% of the world's oil consumption, would maintain its daily output of 30 million barrels a day.

"However, considerable uncertainties continue to surround world oil demand and demand for OPEC oil," he added.

"But a combination of current high inventory levels and increasing OPEC spare capacity, which is expected to reach around 15% in the second half of this year, means there are adequate supplies available to cope with any upward revisions to oil demand forecasts."

In the statement, El-Badri continued, "OPEC notes oil markets remain well supplied and market fundamentals do not require any additional supply from the Organization at this time."

"OPEC will continue to monitor developments and is prepared to help mitigate any tightness which may emerge at any future stage," he added.

Without identifying the International Energy Agency directly, the producer group's statement appears to be a response to this week's hard-hitting report by the agency that warned of the prospect of a world oil supply deficit this year due to record demand, rising project delays and a reluctance by OPEC to ship more crude over the summer.

The IEA Tuesday raised its estimated daily need for OPEC's oil this year by half a million barrels to 31 million barrels, and expressed concern about its ability to offset demand with planned capacity expansions by the end of this year of just 700,000 barrels.

With the need for OPEC crude this year set to climb 2.5 million barrels a day, the challenge to OPEC "would appear to be a key impending market dynamic," the agency said.

"We need an awful lot more crude," IEA supply expert David Fyfe said at the time. "To us, the balance looks particularly stark at the moment."

El-Badri added that the group will keep a close eye on the state of the market, but noted that oil stockpiles held by industrialized nations are comfortable.

Stocks are some 34 million barrels above their five-year average and are at a record in Europe, with oil stockpiles in the U.S. 24 million barrels above their five-year average, he said.

Gasoline stocks Stateside are generally climbing, he noted, and OPEC's output of 30 million barrels a day will help keep stocks comfortable assuming "there is no significant change in market conditions."

El-Badri also said there were expectations of increased oil output from non-OPEC producers this year, a sharp contrast with the IEA's view.

The agency said this week that oil supply growth from non-OPEC producers is set to fall below the psychologically significant 1 million barrels a day this year, thanks to project delays, field exhaustion, and maintenance programs.

It signals the end to three consecutive quarters of plus-1 million barrels-a-day growth from non-OPEC suppliers.

"We're concerned about delays in new project start ups," the agency's Fyfe said, "and to be honest, they're proliferating."

Also, the medium-term picture for Russia, the world's largest oil producer, is one of stasis, with its output reaching a plateau within two years thanks to the uncertain investment climate under President Vladimir Putin and constraints in oil services.

The agency said the country's output may climb 7% to 10.6 million barrels a day by 2010 but then slip a little over the next two years.

The IEA also revised year-on-year world oil demand growth for this year significantly higher to 2%, against its 1.8% forecast last month, pushing outright demand through 86 million barrels a day for the first time.

Though well short of the 4% demand growth seen in 2004, it is double last year's growth despite consistently high oil prices.