Opec ministers say they will almost certainly leave their oil-production ceiling unchanged when the group meets this week. What really matters for global markets is whether Saudi Arabia will respond to global supply shortfalls by pumping a record amount of crude.
Just six months ago, energy analysts predicted output from Opec would climb too high and Saudi Arabia needed to cut to make room for other suppliers. They changed their minds after production from Libya, Iran and Iraq failed to rebound as anticipated, and industrialised nations’ stockpiles fell to the lowest for the time of year since 2008. Saudi Arabia may need to pump a record 11 million barrels a day by December to cover the other member nations, says Energy Aspects, a consultant.
“Now it’s not whether the Saudis will make room, but whether they’ll keep it going and maintain enough spare capacity,” said Jamie Webster, a Washington-based analyst at IHS, an industry researcher. “Opec is increasingly having a hard time just doing its job of bringing all the barrels needed.”
Even as the North American shale revolution propels US production to a three-decade peak, supply in other parts of the world is faltering. A battle for political control in Libya, pipeline attacks in Iraq and prolonged sanctions against Iran are preventing those nations from reviving output. While US crude inventories rose to a record in April, restrictions on exports are keeping those supplies in the country, tempering forecasts that global oil prices will decline this year.
Deutsche Bank, Morgan Stanley, Barclays and Citigroup raised their 2014 Brent price forecasts over the past three months, citing supply risks. The median estimate of the four banks climbed to $107.75 a barrel, from $100.25 as of December 31. The grade has averaged $108.22 a barrel this year, compared with $108.70 in 2013.
Opec, which produces about 40 per cent of the world’s oil, will meet in Vienna on June 11 to discuss its 30 million-barrel daily output target. Ministers from Saudi Arabia, Angola and Kuwait said they expect no change, as did 22 of 23 analysts and traders surveyed by Bloomberg News.
Opec’s Economic Commission Board, a panel that reviews supply and demand levels before the meeting, concluded on June 5 that the current production level is adequate, according to two Opec delegates.
The International Energy Agency, the Paris-based adviser to 29 nations, recommended on May 15 a “significant rise in Opec production” to meet demand of 30.7 million barrels a day in the second half of the year. Oil inventories in advanced nations were at 2.62 billion barrels in April, the lowest for that month since 2008, the year Brent reached a record $147.50 a barrel, IEA data show.
Boosting output that high would be “a Herculean task for the group to surmount given that production has been below 30 million barrels a day for the last five months,” London-based Energy Aspects said in a May 27 research note.
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