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.

Aramco to build $8bn refinery

Aramco to build $8bn refinery
by Reuters
13 June 2007

Saudi Aramco, the state oil company of OPEC kingpin Saudi Arabia, has launched a project to build a new oil refinery, the Middle East Economic Digest (MEED) reported.

MEED said the refinery at Ras Tanura, with a processing capacity of up to 400,000 barrels per day (bpd) of Arabian heavy crude, will cost about $7 billion to $8 billion.

Saudi Aramco has a 550,000 bpd oil refinery in Ras Tanura in the east of the kingdom, the world's largest oil exporter.

Saudi Arabia Curbs Asian Shipments

Oil Rises More Than $1 After Saudi Arabia Curbs Asian Shipments

By Mark Shenk
June 11 (Bloomberg)

Crude oil rose more than $1 a barrel after Saudi Arabia, the world's biggest exporter, told Asian refiners that it would curb shipments for a ninth month in July.

Saudi Aramco, the world's largest state oil company, will cut supplies of its Arab Light and Arab Heavy crude to refiners in Japan, China and South Korea by between 9.5 percent and 10 percent below their contracted volume, officials said. The Organization of Petroleum Exporting Countries last year pledged to cut supplies by 1.7 million barrels a day to support prices.

``I suspect that the Saudis are worried about rising inventories,'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. ``They have been creamed a couple times when inventories have risen too high and they've lost control of the market.''

Crude oil for July delivery rose $1.17, or 1.8 percent, to $65.93 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Prices are down 8 percent from a year ago.

Brent crude oil for July settlement rose $1.01, or 1.5 percent, to $69.61 a barrel on the London-based ICE Futures exchange.

``The Saudi headlines are both good and bad news,'' said Tim Evans, an energy analyst with Citigroup Global Markets Inc. in New York. ``The Saudis reduced supplies to Asia again, which is bullish. On the other hand this is evidence that Asian demand is lousy.''

No Shortage

Iran's Oil Minister Kazem Vaziri-Hamaneh said there's no shortage of crude oil globally and the high oil price is because of low product stockpiles. Iran, OPEC's second-largest oil producer, will start gasoline rationing ``very shortly,'' he said after attending the Asia Oil and Gas Conference in Kuala Lumpur today.

The U.S. increased its criticism of Iran's stonewalling of nuclear inspectors, and the United Nations atomic agency's chief warned of a ``brewing confrontation'' over Iran's uranium enrichment program.

``I am increasingly disturbed by the current stalemate and the brewing confrontation -- a stalemate that urgently needs to be broken, and a confrontation that must be defused,'' International Atomic Energy Agency Director General Mohamed ElBaradei told diplomats today at the IAEA's Vienna offices, according to a copy of prepared remarks given to reporters.

Iran says it is enriching uranium as part of a nuclear- energy program permitted under the Non-Proliferation Treaty. The U.S. says the Iranians are disguising plans to build an atomic bomb, a violation of the accord.

Concern that the dispute over Iran's nuclear program might disrupt shipments from the country has supported prices over the past year. Attacks on oil facilities in Nigeria have curtailed shipments and also bolstered prices.

Regular gasoline at the pump, averaged nationwide, slipped 1 cent to $3.081 a gallon yesterday, according to AAA, the nation's largest motorist organization. Prices touched a record $3.227 a gallon on May 24. Retail gasoline prices are up 6.3 percent from a year ago.

Jubak on Saudi Oil

Saudi Arabia is running the U.S. economy.

I'm not sure the Saudis want the task, but they've got it. Because the United States still doesn't have a national energy policy, we've thrown decisions about how fast our economy grows and whether our standard of living rises or falls into the hands of Saudi Arabia's oil ministry. [...]

It's now Saudi Arabia that's trying to find a delicate balance. In the Organization of Petroleum Exporting Countries (OPEC), the Saudis are the swing producer -- the only major oil producer with enough extra production capacity to increase supply when the price of a barrel of crude soars, and the only major oil producer with the political will and foresight to cut supply when prices fall too low. Right now, the Saudis are producing at 8.5 million barrels a day. Depending on whose figures you believe, their production capacity is anywhere from 9 million to 11 million barrels a day.

If the Saudis allow oil prices to climb too high, then consumers will cut back on use, and energy alternatives will become sufficiently attractive to investors to cut into oil's share of the global energy market. Worst case: Oil prices will climb so high that they cause a global recession that will certainly cut demand.

If the Saudis allow oil prices to fall too much, they will reduce the revenue they get for oil and reduce their clout among those oil-producing countries that are only willing to follow the Saudi lead as long as it lines their pockets. Worst case: Revenue falls so far that the Saudis and other oil-producing countries don't have the cash to support their own plans for growing their economies and providing the jobs and subsidies that keep many oil-country governments in power. [...]

The U.S. economy is no exception. Total oil imports into the United States jumped by 14% in March from February to hit record levels. And even as gasoline prices soar in the United States, consumption growth continues. U.S. gasoline demand in May was up about 1% from May 2006.

How much clout does that give the Saudis over the U.S. economy?The United States imports about two-thirds of its oil at a cost of about $300 billion a year. According to a study by the Rand Corp., each $10 increase in the cost of a barrel costs the average American household $700 a year.

In January 2004, the price of oil was $34.27 a barrel, according to the St. Louis Federal Reserve. It closed at $65.08 on June 1, 2007. Using Rand's numbers, that's an increase of $2,156 per household for oil. In that same period -- when the Federal Reserve's short-term interest rate increases pushed the yield on the 10-year Treasury note to 4.95% from 4.30% -- U.S. Gross Domestic Product growth dropped from 3.9% in 2004 to 3.2% in 2005, 3.3% in 2006 and to 0.6% in the first quarter of 2007. I certainly can't tease out the effects of higher oil prices from the effects of higher interest rates, but my suspicion is that the former has had a bigger effect on the U.S. economy in this period than the latter, thanks to the continued availability of cheap money from global sources such as Japan.

Saudi Arabia has no interest in killing the U.S. or the global golden goose. Sending our economy or, worse yet, the global economy into a recession, or even quarter after quarter of growth below 2%, would wreak havoc with Saudi revenues.

But it is in Saudi self-interest to charge the most the market will bear; after all, oil is an exhaustible resource. Even though we can debate about when that resource might be so depleted that Saudi Arabia can't produce significant oil, we all know that one day the oil will be gone. So every time a terrorist attack in Nigeria, a flare-up in tension between the United States and Iran or an expropriation by Venezuela's Hugo Chavez spikes the price of oil, you can bet the Saudis are studying the market response. If a price spike doesn't result in a significant decline in consumption, then the inclination of any rational oil producer would be to let prices drift higher (or to push them higher by cutting production). [...]

June 5th - MSN Money