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

MMS chief hopes next president, Congress won't reinstate OCS bans

12/19/2008 US Minerals Management Service Director Randall B. Luthi said on Dec. 9 that he hopes the Obama administration and Congress seriously consider expa...

FERC issues final EIS for proposed LNG project near Baltimore

12/19/2008 The Federal Energy Regulatory Commission's staff identified additional adverse environmental impacts as it issued a final environmental impact stat...

Gran Tierra defers Colombian pipeline project

12/17/2008 Gran Tierra Energy Inc., Calgary, has deferred a 100-km pipeline project in Colombia connecting Costayaco field to the Orito gathering facilities.

Petrobras gets loan for Revap refinery upgrades

12/14/2008 Brazil's Petrobras has borrowed ¥750 billion from a consortium of Japanese banks to finance its investments in the 226,000-b/d Henrique Lage (R...

CCS ends purchase of Newpark Environmental Services after FTC sues

12/12/2008 Newpark Resources Inc. and CCS Inc. agreed on Nov. 24 to cancel the proposed sale of Newpark's US environmental services business to CCS. The Feder...

PetroSA awards contract for South African refinery

12/08/2008 PetroSA has let a feasibility and front-end engineering and design contract to KBR for its 400,000 b/d refinery in the Coega industrial development...

MMS begins preparation process for 2011 lease sale off Virginia

11/28/2008 The US Minerals Management Service took the first step on Nov. 12 toward holding an offshore oil and gas lease sale off Virginia in 2011.

Sakhalin-2 set to deliver LNG in February

11/25/2008 The Sakhalin-2 project is expected to begin deliveries of LNG to Japan on Feb. 19, 2009, according to an executive of the Sakhalin Energy Investmen...

Myanmar awards China pipeline rights

11/20/2008 Myanmar has awarded China the right to manage planned pipelines that will transport crude oil and natural gas from the Bay of Bengal across Myanmar...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts

On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.



Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.


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