OPEC quota hike fails to halt price rise

Sam Fletcher
Senior Writer

Crude prices soared to new heights as traders ignored an immediate 500,000 b/d hike by the Organization of Petroleum Exporting Countries in its production quota on Mar. 16 to 27.5 million b/d, less than the group's previously acknowledged production level of 27.7 million b/d among the 10 affected members, minus Iraq.

The April contract for benchmark US sweet, light crudes jumped by $1.41 to a record front-month settlement at $56.46/bbl on the New York Mercantile Exchange. April North Sea Brent crude traded as high as $54.95/bbl prior to closing at $54.80/bbl on the International Petroleum Exchange in London. The average price for OPEC's seven benchmark crudes set a record at $50.78/bbl.

"It's not the result we wanted," said Adnan Shihab-Eldin, OPEC's acting secretary general, in response to initial market moves. April crude slipped Mar. 17 but not before hitting a 22-year high of $57.60/bbl in intraday NYMEX trading. It rebounded to a new high closing of $56.72/bbl Mar. 18. OPEC's basket price hit a new high of $51.76/bbl Mar. 17, then pulled back to $51.67/bbl on Mar. 18.

Traders watch inventories
Despite OPEC's nominal adjustment of its production quota, traders focused on a report the same day from the Energy Information Administration that commercial US gasoline stocks fell by 2.9 million bbl to 221.4 million bbl during the week ended Mar. 11. Distillate fuels were down by 1.9 million bbl to 107.3 million bbl, with a sharp decline in heating oil overriding a slight increase in diesel, EIA said. US crude inventories gained 2.6 million bbl to 305.2 million bbl.

US crude imports decreased by 58,000 b/d to more than 10 million b/d during the same period. However, crude input into US refineries increased by 180,000 b/d to 15.1 million b/d, with refineries operating at 90.7% of capacity.

"In stage-managing a move down in prices, the very last thing that OPEC ministers needed was the most bullish US weekly statistics of the year to come out on the same day as their meeting," observed Paul Horsnell, Barclays Capital Inc., London. "Distillate demand is strong, so is residual fuel oil demand, and even gasoline demand is running strong."

With the American Automobile Association reporting record high retail prices for gasoline at a nationwide average of $2.055/gal the day after OPEC's meeting, US gasoline demand appears still to be growing at 2%/year, analysts said. OPEC's increase of its quota ceiling "might not deflate prices or sentiment significantly in the short run, but it is a necessary first step in providing some defense against extreme market tightness in the second half of this year," Horsnell said.

In the weeks preceding the OPEC meeting, the pending event first was "seen as bullish because there might be a cut, and then seen as bullish because there might not be an increase," Horsnell noted. "Now that there has been an increase, it is quite possible that it could be seen as bullish because it signals a compression in the remaining spare [OPEC production] capacity. In other words, in getting the maximum 'bang for the buck' from the quota increase and the maximum downwards leverage on short-term prices, it might have been better left for later."

Possible strategy change
On the other hand, OPEC's action may be "a significant change from basing strategy on the most bearish numbers," Horsnell said. "If the market turns out to be less strong than expected, then supply can always be taken away, while the lesson of last year is that catching up when already close to full [production] capacity is far more problematic."

He said, "If that leads to a short-term change in sentiment and reduction in prices, then all well and good. But if it does not, then that is a lesser concern compared with reducing the chance of an uncontrollable price upside in the fourth quarter."

Horsnell observed, "The meeting has also helped to confirm the now widely held view that the key producers see a [price] range of about $40-50[/bbl] for West Texas Intermediate to be the correct one." He cited a recent statement by Saudi Arabian Oil Minister Ali I. al-Naimi in a newspaper interview: "Current oil price levels of $55 are high, and we want prices to be between $40-$50/bbl."

Horsnell said, "That 'want' is significant in confirming for all that the rules of the game have indeed changed. It also confirms that it is very difficult, if not completely untenable, for analysts to have average price forecasts below $40[/bbl]."

(Online Mar. 21, 2005; author's e-mail: samf@ogjonline.com)


Related Articles

Chinese regulators approve Sinopec’s plan for grassroots refinery

02/06/2015 China’s National Development and Reform Commission (NDRC) has approved Sinopec Beijing Yanshan Petrochemical Co. Ltd., a subsidiary of China Nation...

Union strike ongoing at US refineries as negotiations continue

02/06/2015 A strike by union workers at nine US refining and petrochemical production plants remains under way as the United Steelworkers Union (USW) continue...

Goodlatte reintroduces bills to repeal, reform RFS

02/05/2015 Calling it “a true ‘kitchen table’ issue,” US Rep. Bob Goodlatte (R-Va.) reintroduced a pair of bills to address problems in the federal Renewable ...

Regulators approve Phillips 66’s California refinery improvement project

02/04/2015 The governing board of California’s Contra Costa County has approved a permit for Phillips 66 to move forward with a proposed project that would en...

CNOOC lets contract for Huizhou refinery expansion

02/03/2015 CNOOC Oil & Petrochemicals Co. Ltd., a subsidiary of China National Offshore Oil Corp. (CNOOC), has let a contract to Porvair Filtration Group ...

CNOOC subsidiary inks deal for grassroots refinery

02/02/2015 Hebei Zhongjie Petrochemical Group Co. Ltd., a subsidiary of China National Offshore Oil Corp. (CNOOC), has entered into a $700 million agreement w...

Union strike under way at US refineries, petchem plants

02/02/2015 The United Steelworkers Union (USW) has instituted a strike at nine US refining and petrochemical production plants following a breakdown in negoti...

Novel upgrading technology cuts diluent use, capital costs

02/02/2015 A novel bitumen upgrading process that decreases the amount of diluent required for pipeline transportation and reduces overall operating costs has...

E&Y: Oil-price collapse to boost global M&A activity in 2015

02/02/2015 The oil-price collapse will facilitate increased global transaction activity in 2015 as companies revise and implement new strategies, according to...
White Papers

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

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...

Accurate Thermo-Fluid Simulation in Real Time Environments

The crux of any task undertaken in System Level Thermo-Fluid Analysis is striking a balance between ti...

6 ways for Energy, Chemical and Oil and Gas Companies to Avert the Impending Workforce Crisis

As many as half of the skilled workers in energy, chemical and oil & gas industries are quickly he...
Sponsored by
Available Webcasts

On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Oil & Gas Journal’s Forecast & Review/Worldwide Pipeline Construction 2015

Fri, Jan 30, 2015

The  Forecast & Review/Worldwide Pipeline Construction 2015 Webcast will address Oil & Gas Journal’s outlooks for the oil market and pipeline construction in a year of turbulence. Based on two annual special reports, the webcast will be presented by OGJ Editor Bob Tippee and OGJ Managing Editor-Technology Chris Smith.
The Forecast & Review portion of the webcast will identify forces underlying the collapse in crude oil prices and assess prospects for changes essential to recovery—all in the context of geopolitical pressures buffeting the market.

register:WEBCAST


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