OPEC: Low oil prices hurting world economy

Updated 10 February 2016
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OPEC: Low oil prices hurting world economy

LONDON: OPEC pointed to a larger oil supply surplus on the world market this year than previously thought as Saudi Arabia and other members pump more oil, helping to make up for losses in non-member producers hurt by the collapse in prices.
The monthly report from the Organization of the Petroleum Exporting Countries indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report.
A persistent surplus could weigh on prices, which have collapsed to a 12-year low of $27.10 a barrel last month from over $100 in mid-2014. OPEC’s 2014 strategy shift to defend market share and not prices helped deepen the decline.
OPEC also cut its forecast for world economic growth in 2016 to 3.2 percent from 3.4 percent and said low oil prices were hurting the economy, in contrast to previous price slides that were supportive of global growth.
“It seems that the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short-term,” OPEC said.
“There seems to be a ‘contagious’ effect taking place across many aspects of the global economy.”
OPEC cited factors including the financial strain on producers dependent on oil income, the inability of central banks to lower interest rates and impacts on sectors from manufacturing to agriculture.
The report added to signs that the price drop is hitting relatively expensive non-OPEC supply. Companies have delayed or canceled billions of dollars worth of projects, putting some future supply at risk.
OPEC now forecasts supply from non-member producers will decline by 700,000 bpd in 2016, led by the United States. Last month, OPEC predicted a drop of 660,000 bpd.
But OPEC produced 32.33 million bpd according to secondary sources, up 130,000 bpd from December, offsetting the forecast decline from outside the group.
Top OPEC exporter Saudi Arabia told OPEC it increased production to 10.23 million bpd from 10.14 million bpd in December. The secondary sources also reported higher output from major producers Iran and Iraq.
Supply from OPEC could rise further due to the lifting of sanctions on Iran. Tehran is aiming to increase output by 500,000 bpd, which would fill most of the hole left by non-OPEC members.
OPEC left its 2016 global oil demand growth forecast little changed, predicting demand would rise by 1.25 million bpd, marking a slowdown from 1.54 million bpd in 2015.


Iran looms large over OPEC summit

Updated 22 September 2018
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Iran looms large over OPEC summit

  • Saudi Arabia only country in Mideast, and perhaps world, with enough capacity to keep market supplied, say experts
  • At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies

LONDON: The Opec summit in Algiers on Sunday meets amid widespread fears of a supply crunch when a forecast 1.4 million barrels a day of crude is lost from Iran in November when US sanctions kick in.
If, on top of that, more supply shocks hit the market in worse-than-expected disruption from Libya and Iraq, the price of crude could surge, said Andy Critchlow, head of energy news at S&P Global Platts. “At the moment, the market looks finely balanced,” he said.
There isn’t a lot of slack in the system. As Critchlow points out: “Upstream investment in infrastructure and new wells is historically low and it will take a long time to turn that around.”
At Algiers, Opec and leading non-Opec countries are expected to discuss how to allocate supply increases to offset a shortage of Iran supplies. The gathering comes after a tweet by President Trump on Sept. 20 calling on Opec to lower prices. He said on Twitter that “they would not be safe for very long without us, and yet they continue to push for a higher and higher oil price.”
Critchlow reckoned KSA still had spare capacity of about 2 million bpd. And KSA would get oil back as they go into winter as it had needed 800,000m bpd merely to generate electricity for the home market to meet heightened demand for air conditioning in the summer.
But there is uncertainty about what will come out of Algiers. For a start, the Iranians say they will not attend. That could be tricky in terms of an Opec communique at the end of the meeting as statements need unanimous support from member nations. And Iran has indicated it will veto any move that would affect Iran’s position, ie, one where other countries absorb its market share as sanctions bite.
Jason Gammel, energy analyst at London broker Jefferies, said: “The magnitude of the drop in Iranian exports is likely to be higher than any hit in demand as a result of problems linked to emerging market currencies, or trade wars. That’s why we expect oil prices to continue to strengthen. The Saudis and their partners will keep the market well supplied, and I think the issue is that the level of spare capacity in the system will be extremely low. Any threat or interruption will mean price spikes. Possibly by the end of the year demand will exceed supply; for now, the market remains in balance, but threats of supply disruption will bring volatility.”
Under the spotlight in Algiers is a production cuts accord forged by Opec and 11 other countries in 2016 which has been extended to the end of this year. The agreement helped reboot prices and obliterate inventory stockpiles that led to the crash in crude prices nearly three years ago. But how long will the agreement last? Algiers may kick that one into the long grass.
Thomson Reuters analysts Ehsan Ul-Haq and Tom Kenison told Arab News: “OPEC members would like to maintain cohesion within the group around supply ahead of Iran sanctions and declining Venezuela production, However, they are expected be in favor of maintaining stability in prices while doing so. On the other hand, they need to find a consensus around how their market share would be affected by a decision to pump more oil in the market. Any decision around production will likely be offset until the November meeting.”
Critchlow said that it is what KSA and Russia say and do that matters. “They speak for a fifth of the global oil market, producing a combined total of 22m bpd.” Together, they are the swing producers when it comes to crude production and supply.
Another factor about Algiers is that it is a meeting of the Joint Ministerial Monitoring Committee, which is not a policy-making forum. Big policy statements may have to wait for the main Opec summit in Vienna at the end of year. That said, there will be some very high-level delegations in Algiers, including the Saudi oil minister and his Russian counterpart.
A statement about the demand picture could emerge, especially as there are fears about the impact on the global economy from the US-China tariff war.
Looking to the future, Critchlow thought the Opec production cuts accord would carry on into 2019. “Oil priced between $70/bbl and $80/bbl is a sweet spot for Middle East producers. Its’s good for Saudi as it helps stop further drainage of their foreign reserves and moves the budget back toward balance. Do they want (the price) to go higher? I think that would cause a lot of political problems for them.”