Tuesday, September 29, 2020
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OPEC’s own outages delay day of reckoning on new supply curbs

VIENNA: OPEC is perhaps fortunate that the misfortune of some of its own members should make a production policy meeting this week look set to be a straightforward affair.
The Organization of the Petroleum Exporting Countries would face a significantly trickier task at a Wednesday meeting if several in the producer were not pumping below par because of civil strife or sanctions.
Iran, Libya, Nigeria and Iraq of the 12-member group account for a large proportion of global supply outages that total some 3.6 million barrels per day on the 90 million bpd world market.
Iran and Libya are both pumping about one million bpd below capacity because of sanctions and civil protests respectively. Oil theft in Nigeria is depressing output by 350,000 bpd and infrastructure and security issues cost Iraq about 500,000 bpd in October.
The losses have delayed OPEC’s day of reckoning on having to reduce its 30 million bpd production target if it wants to keep oil prices above $100 a barrel.
OPEC officials, privately, say they do not expect to see supply outages in Libya and Nigeria resolving themselves any time soon, or Iranian crude exports making rapidly increasing.
But the group faces the start of a squeeze in market share in 2014 because of the boom in US shale oil production, record post-Soviet output from Russia and rising output from Brazil and Kazakhstan.
“Non-OPEC supply is growing at its fastest for many years,” said Barclays. “An overall expansion of around 1.5 million bpd for non-OPEC, the fastest in 30 years, looks likely in 2014.
Forecasters expect demand for the OPEC crude next year to fall by about 500,000 bpd to 29.5 million.
OPEC’s own longer-term forecasts point to a continued fall in the medium term with one scenario indicating that despite growing world consumption, demand for its crude will slip to 28 million bpd by 2018.
That outlook could deteriorate for OPEC should US production continue rising in one million bpd annual increments as has been the case this year and last.
Goldman Sachs expects just that every year to 2016, increasing US production by five million bpd in five years to 14 million bpd.
Saudi Arabia appears to be betting that shale is a short term phenomenon.
“I don’t think our decision makers are worried about US oil shales which are unsustainable beyond a few years in any case for technical and geological reasons,” said Sadad Al-Husseini, a former top executive at Saudi Aramco.
For the past two years, Saudi Arabia has balanced the world oil market and kept prices mostly in a $100-$120 range. Brent traded just short of $110 on Monday.
“The market is fairly well balanced. If there is any tweaking of that, it is up to Saudi Arabia, Kuwait and the UAE,” said Samuel Cizsuk of the Swedish Energy Agency.
Saudi has already pulled back from record high output just above 10 million barrels daily to 9.75 million bpd in October. That helped lower OPEC production to 29.9 bpd from a peak this year near 30.6 million bpd.
Should sanctions on Iran be lifted in full after its six-month interim nuclear deal, OPEC could be forced to negotiate a new round of supply curbs.
“We will watch Iran closely,” said an OPEC official.
“When the time comes for them to recover lost production — no one can deny them that right.”
OPEC has been unable for years to agree individual country output quotas. While Saudi is prepared to trim supply informally the absence of quotas is not missed, but it may need them if it has to cut back heavily and share out reductions.