OPEC: Demand outstrips OPEC supply

[phantom power]

An OPEC report suggests that world demand for its oil is outstripping the present supply.

The monthly demand forecast from the Organization of The Petroleum Exporting Countries says estimated OPEC crude production last month averaged 28.97 million barrels a day. It also says that demand this year for OPEC oil is expected to average a daily 29.9 million barrels.

The report was published Friday, two days after an OPEC meeting ended in disarray, with Saudi Arabia and other Gulf members unable to push through demands to lift production ceilings. OPEC members opposed were led by Iran.

World oil demand is expected to outpace supplies later this year by the widest margin since 2007. The Saudis and their allies are likely to increase exports on their own to meet the shortfall, following the deadlock at Wednesday's meeting.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/06/10/financial/f045852D47.DTL#ixzz1OsjzUSq1

[GliderGuider]

1. Bleak toil, freak boil, leak soil ... something like that... nt

[FBaggins]

2. Remember that they're a cartell.

If they can produce more yet decide not to (as happened just this week), that isn't a production peak. It's price manipulation.

The second point to keep in mind is all those tankers that were keeping crude in storage waiting for higher prices. They were artificial "demand" months ago, but not offset actual demand that isn't met by actual production.

[GliderGuider]

3. They're not a cartel, they're an "organization". Ali al-Naimi said so...

Anyway, the standard peakist response is:

We have no way of knowing whether they actually have the spare capacity they claim. Since it's in their best interest to claim spare capacity, the claims are automatically suspect unless they are reflected in the a rise in actual production figures. That has not been much in evidence recently.

Peak production is on of the things that can affect price, but not the only one. High prices are not necessarily evidence of Peak Oil, in the same sense that weather isn't evidence of climate change. However, to draw out the analogy a little more, price instability within a long-term rising price band (especially in the absence of major changes to the marketed volumes) can be taken as one good piece of evidence.

Most floating storage is used in conjunction with offshore production, as sort of an oil staging area. A list of these floating storage units and the fields they are assigned to can be found here.

Tanker storage is a bit of a red herring, because it's an ongoing phenomenon that is used to greater or lesser extents depending on the amount of contango in the oil futures market. The volumes they store are insufficient to affect global supply over any extended period. The most I've seen reference to being stored at any one time is around 120 million barrels in 2009, maybe a day and a half's consumption. I've seen references to the current floating storage being about 30 million barrels. In a sense the floating storage is used by producers to stabilize the market - they put oil in storage when prices are low, reducing supply a bit and moving prices up (as they did in 2009), then taking it out of storage as prices rise, thereby increasing supply and moving the price down a bit. It's really more of a buffer than a gouge. Here is a more extended discussion of the issue:http://www.oil-price.net/en/articles/the-case-for-floating-oil-storage.php">The case for floating oil storage.


Feel free not to believe any of this if it doesn't suit your world-view.

[FBaggins]

5. Cartels ARE "organizations". OPEC is the very model of a cartel

regardless of what they want to call themselves.

We have no way of knowing whether they actually have the spare capacity they claim. Since it's in their best interest to claim spare capacity,

I've seen that claimed by the "peakists" many times... but it doesn't make sense. In fact just the opposite is true. No better way to boost prices than to let people think that you're about to run out of your product.

price instability within a long-term rising price band (especially in the absence of major changes to the marketed volumes) can be taken as one good piece of evidence.

Something like the multi-year trend in natural gas leading up to just a few years ago?

Most floating storage is used in conjunction with offshore production

That part is baked in (and is the "ongoing phenomenon" you mentioned). I'm talking about the speculation. But I confess that I haven't followed the stats since oil prices came back up. That may all but gone now.

The most I've seen reference to being stored at any one time is around 120 million barrels in 2009, maybe a day and a half's consumption.

Right... days of world demand isn't the relevant data point here. How many days of coverage is that if OPEC is producing half a million bpd less than demand is consuming?

[GliderGuider]

6. Of course they're a cartel. I was mocking the Saudis' sensitivity.

As I understand it from reading the comments of some people involved with production in the US, what oil producers desire much more than high prices is price stability. A long-term rising trend is probably welcome, but volatility isn't in anyone's best interest. Fear is a very unwelcome guest in the marketplace.

[NickB79]

8. Admitting they have no spare capacity would ruin OPEC

A flat-out admission that they won't be able to increase oil production in the future would indeed create a short-term spike in the market, but that spike would then be followed by a crash, first due to an economic recession (as we just saw) and then by countries working to wean themselves off of OPEC oil now that OPEC had proven itself to be unable to meet their future demands.

You don't want the drug addict to try to get clean until you've sold him every last crack rock you got.

[IDemo]

4. Nobody could foresee this happening.....

[bhikkhu]

7. If not for years of misinformation...

this might not be taken for misinformation.

I think the underlying message, whether one believes the one on the surface or not, is that OPEC is about done. Its probably been a very long time since an "OPEC production quota" made a bit of difference to the market.