Energy markets remain tight

Sam Fletcher
Senior Writer

HOUSTON, Jan. 7 -- The US Energy Information Administration expects growth in world demand for oil to slow this year in reaction to high prices, down 23% to an increase of 2 million b/d. But that still would outstrip the expected increase of crude production among nations outside the Organization of Petroleum Exporting Countries and would keep world markets tight, EIA said.

Adnan Shihab-Eldin, OPEC's acting secretary general, said crude prices "appear to be moving toward [market] fundamentals" in a retreat from nominal record high levels late last year. OPEC is projecting oil demand growth of 1.6 million b/d in 2005, with Asia accounting for much of that increase. That would require OPEC to supply 28 million b/d of crude in 2005, said Shihab-Eldin.

OPEC ministers voted Dec. 10 to reduce overproduction by 1 million b/d effective Jan. 1, while retaining their production quota of 27 million b/d for the 10 members except Iraq (OGJ Online, Dec. 10, 2004).

OPEC's decision appears to have imposed more stability in the world oil market, said Paul Horsnell of Barclays Capital Inc., London. "First, prices have not only stabilized, but they have done so in the proximity of $35[/bbl] for the OPEC basket, a level which has looked increasingly like the new effective target for the midpoint of trading ranges. Second, the implementation of the cuts from above-quota production seems to have gone very smoothly. Saudi [Energy] Minister Ali [Al-]Naimi has confirmed that Saudi Arabia has moved back to 9 million b/d, and other members also seem to have moved to implement the agreement swiftly. The knock-on impacts of the cuts already seem apparent in the extremely sharp drop in tanker rates out of the Middle East and also in the ability of producers to move to narrow the adjustment factors used in the price formula of heavier crudes," he said.

'A clear signal'
Moreover, the scheduled meeting of OPEC ministers Jan. 30 provides "a clear signal that if the value of the OPEC basket starts to move below $35 or if ministers feel that global supply-demand second-quarter balances are not likely to be supportive enough, then a cut in quotas is more than likely. In all, that has constituted a fairly strong incentive for traders not to have wanted to stray too far away from $35 for the value of the OPEC basket," said Horsnell.

"OPEC will introduce a new price band and likely [will] defend it strongly," agreed analysts at Global Insight Inc., London. "However, some of the quota squabbling may reemerge if global growth slows down." OPEC's current target price band, established in 2000, is $22-28/bbl.

Global Insight analysts expect "a higher baseline oil price" this year that will pressure international oil companies to "increase capital expenditure outside existing holdings." They said, "A relative lack of 'safe' investment options will encourage the shift towards more high-risk locations, forcing difficult choices between security and low growth vs. risk-taking and more substantive returns."

They see the Middle East offering both risks and rewards. "While it may still be too soon for any substantive Iraq opportunities to emerge, some of the groundwork should be laid. Libya will see the most interest," they said.

'Safe and effective'
Horsnell commended OPEC for placing the secretary general position in Shihab-Eldin's "safe and effective" hands. "There have perhaps in the past been just a tad too many red herrings and other diversions introduced into oil policy debates, often more by accident than design. However, under Dr. Shihab-Eldin, we would expect the OPEC secretariat to become a relatively herring-free zone," he said.

At any rate, Horsnell said, "The oil market appears to be far more under control than a month ago, although the resolution of the current fog in global balances may lead to a more decisive break." He said, "Over the coming weeks, we could yet find that the global situation is slacker than first thought and hence that OPEC has some more work to do. Alternatively, and this remains our base case, we could find that demand has continued to be underestimated, and non-OPEC supply overestimated, and that the market will prove tighter than consensus."

Meanwhile, said Horsnell, "Patterns in the Northern Hemisphere winter remain the important factor, particularly given the extremely distillate-driven nature of current oil market conditions. For the US market, there does seem to be a perception that the winter has been unseasonably mild and far warmer than last year. The reality in the data is different, primarily due to the extent that the gaps were closed by very cold conditions in the last 2 weeks of the year."

(Author's e-mail:

Related Articles

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

OGJ Newsletter


Security through change


At the start of this month the US Army published its "Energy Security & Sustainability (ES2) Strategy" report. 

Marathon commissions unit at Kentucky refinery

06/29/2015 Marathon Petroleum Corp. (MPC) has commissioned a 35,000-b/d condensate splitting unit at its 242,000-b/d Catlettsburg, Ky., refinery to boost the ...

OGJ Newsletter


Recognize industry know-how in US Arctic policies, API officials urge

06/19/2015 US Arctic oil and gas policies should recognize the industry’s extensive global Far North experience and technology, American Petroleum Institute o...

PBF Energy inks deal for Louisiana refinery, logistics assets

06/18/2015 PBF Holding Co. LLC, a subsidiary of PBF Energy Inc., Parsippany, NJ, has entered an agreement with ExxonMobil Corp. and Petroleos de Venezuela SA ...

OGJ Newsletter


Gazprom Neft completes first winter sea shipments of oil from Yamal Peninsula


JSC Gazprom Neft reported completion of its first winter shipments of oil from Novoportovskoye field in Russia’s Yamal Peninsula.

White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts

On Demand

OGJ's Midyear Forecast 2015

Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.


Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!


Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected