Renewed call on OPEC
The Paris-based International Energy Agency (IEA)in its monthly report, released recently, said that oil demand will be higher in the second half of this year, a development that will result in the depleting of conventional inventories, pushing prices up. And if that is to happen it could endanger the economic growth pick-up. Accordingly, OPEC is required to pump an average 30.7 million barrels per day, or 800,000 bpd more than it pumped in April.
In its report, the IEA said “forecast balances call for a significant rise in OPEC production from current levels for the second half of the year,” adding that, “while OPEC has more than enough capacity to deliver, it remains to be seen whether it will manage to overcome the above-ground hurdles that have plagued some of its member countries lately.”
From Ukraine to Libya, Nigeria, Angola and South Sudan, the oil market is experiencing a growing disruption of supplies for a variety of technical, and security and political problems in producing countries inside and outside the organization.
OPEC’s output managed to rebound from its lowest level in five years, when it increased by 405,000 bpd to 29.9 million last month thanks to increase of Saudi and Iraqi production. That makes in effect next biannual meeting by the organization in Vienna a foregone conclusion as it can simply roll over its formal ceiling figure of 30 million bpd, an increase of some 200,000 bpd on previous estimate by IEA.
Two things became clear out of market performance so far: non-OPEC supplies are diminishing and are expected to grow only by 100,000 bpd to 1.5 million, lower than previous estimate. And that both Saudi Arabia and Iraq emerge as the two main leaders in increasing their output with the first bolstering its production by 100,000 to 9.66 million bpd, while Iraq managed to add 140,000 bpd to 3.34 million thanks to start-up of new projects in the southern parts of the country.
Overall Iraqi production is slated to increase more if the stalemate concerning flow of oil from semi-autonomous Kurdistan region is resolved.
Another factor that raises some worry is the level of inventories of crude and refined oils, which remained tight, and subject to market volatility.
The IEA estimated that there is a “wide” deficit of 110 million barrels to their five-year seasonal average, according to the report, which puts stockpiles in the 34 IEA members were at 2.57 billion barrels in March, down 2.5 million from the previous month.
An emerging factor is the Chinese trend to build up its strategic stockpile adding more than 40 million in the first half of this year.
The growing demand poses supplies security concerns for Beijing.
Building strategic reserves to fall on in case of emergencies is one lesson learnt by Western countries and IEA itself is a product of the famous 1973 Arab oil embargo.
The other part of the equation is that Western countries led by the US have long established relations with the Middle East that allowed them to have some kind of a military presence to guard oil routes.
Whether China will take the same trend given its growing dependence on Middle Eastern crude supplies remains to be seen depending on political and security developments in the region.
The bottom line in all this is that unlike previous forecasts that speak about possible glut in the market with the growing supplies notably from the US, Canada, Brazil and other non-OPEC producers, the tone is completely different and the call on the organization to pump more.
That is not the first time for some critics to issue death certificate for OPEC, though a close look show clearly that the tough job of balancing the market falls not on OPEC as an organization, but on some of its members led by Saudi Arabia who over the years have developed the ability to raise and lower their output and keep the market supplied and balanced.
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