Mid-East demand up as OPEC holds output

Sam Fletcher
Senior Writer

As expected, ministers of the Organization of Petroleum Exporting Countries made no production changes at their Feb. 1 meeting in Vienna, despite pressure from the US and other large consuming countries to increase output.

OPEC ministers repeated their frequent assertion that current production is sufficient to satisfy demand through the first quarter of 2008 and promised to monitor markets until their next meeting Mar. 5. The assumption they would take no action was already priced into the market prior to the meeting. OPEC's inaction could offset recent reports of US crude inventories steadily building above consensus expectations, and crude may continue to hover in the $90/bbl range, said analysts in the Houston office of Raymond James & Associates Inc. However, they said, "We expect incremental Middle Eastern cargoes to hit the market over the remainder of the first quarter, potentially causing further crude weakness in the short term."

Olivier Jakob of Petromatrix GMBH, Zug, Switzerland noted Nigeria's export program for March will be constrained by maintenance, but Iraq has resumed oil exports via its Kirkuk pipeline. "Saudi Arabia has confirmed to be leaking above quota, and [very large crude carrier] activity and freight rates have started this week to rebound in the Arabian Gulf," he said Feb. 1.

In a 2008 commodities report by Barclays Capital, the investment banking division of Barclays Bank PLC, analysts said, "We expect OPEC policy to remain cautious, and we expect non-OPEC supply to again disappoint relative to consensus expectations. …We expect prices to move up significantly in the second half of the year, with economic pessimism providing more of a brake earlier in the year."

Middle East demand
While the lion's share of OPEC's production is from its Middle East members, economic development in that area and Asia also has escalated world demand for crude. "In 2007, the three countries with the greatest absolute increase in oil demand were, in order, China, Saudi Arabia, and India. We expect the same three countries to be the main sources of demand growth in 2008. Indeed, China, India and the Middle East as a whole were responsible for virtually all net global oil demand growth in 2007, and we would expect that pattern to also continue into 2008," said Barclays Capital analysts.

They see global demand growth accelerating to 1.7% in 2008 from 1.2% in 2007. "A visible weakening of oil demand growth relative to the pattern of the past 3 years does seem to require…an economic discontinuity larger than anything that is currently envisaged," analysts said.

Middle East demand is growing because of high oil prices funneling cash into that area where government subsidies reduce domestic costs of petroleum products. Demand growth in that region could fall if there were a large drop in international oil prices. "However, in that case, one would expect increased demand from elsewhere to compensate for the decline in growth in the Middle East," Barclays Capital said. "In other words, almost half of global growth in 2007 came from a region where the direct short-term linkages to the Organization for Economic Cooperation & Development members' economic performance can be expected to be rather weak."

Barclays Capital analysts said, "OECD demand is expected to remain weak for the fourth straight year, but it has lost virtually all of its ability to occupy the margin of the market and to be a significant price driver."

A fundamental rut
The world oil market has "settled into a fairly comfortable and well-worn groove over the past 3 years in terms of its fundamental balances," said Barclays Capital analysts. "Indeed, the key dynamics on both the supply and the demand side of the market have scarcely changed at all across 2005-2007. It has been that constancy and the associated failure to generate any additional headroom within the short-term market or any additional level of comfort about longer-term balances that has helped prices to continue their drift upwards at all points along the curve."

Therefore, they said, "The rise in prices has been less about anything happening in a dynamic fashion to push prices up and has been more to do with things not happening. The failure of rising prices to loosen global balances in any significant way has been a key component of reducing resistance to the gradual and concerted move up. The key question for 2008 is, then, whether any of the key trends that have continued so stubbornly over the past 3 years are likely to show signs of losing purchases."

(Online Feb. 4, 2008; author's e-mail: samf@ogjonline.com)

Related Articles

EPP kills plans for Bakken-to-Cushing crude oil pipeline

12/15/2014 Enterprise Products Partners LP (EPP) has elected not to proceed with development of its proposed crude oil pipeline that would have extended 1,200...

Woodside to buy Apache’s interests in Wheatstone, Kitimat LNG for $2.75 billion

12/15/2014 Woodside Petroleum Ltd. has agreed to acquire interest in the Wheatstone LNG and Kitimat LNG projects, respectively in Western Australia and Britis...

Gas agreement seen firming China-Russia energy ties

12/15/2014 A Nov. 9 framework agreement for another large gas-supply deal between OAO Gazprom and China National Petroleum Corp. remains far from concluded bu...

Falling prices may pose new test for China oil policies, speakers say

12/15/2014 China, which successfully revised its oil strategy in response to new technologies since 2008, could face fresh tests if prices stay low for a prol...

Watching Government: Russia: On the ropes?

12/15/2014 Russia's Dec. 1 cancellation of its South Stream natural gas pipeline was not surprising. European nations have signaled for years that they intend...

ExxonMobil forecasts 35% higher world energy demand by 2040

12/15/2014 A significantly bigger global middle class, expanded emerging economies, and 2 billion more people will contribute to 35% higher world energy deman...

API: Producers reducing methane emissions already

12/15/2014 US oil and gas producers are reducing wellhead methane emissions already and don't need ill-conceived, overly prescriptive federal regulations, Ame...

West Cornwall Township hears from Sunoco Logistics

12/12/2014

Sunoco Logistics Partners outlined its safety systems during a West Cornwall Township meeting in Pennsylvania on Nov. 10.

ETP eyes larger capacity for planned Bakken pipe

12/12/2014 Energy Transfer Partners LP has launched a binding expansion open season to boost capacity on a planned pipeline system that would move oil from th...

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.

register:WEBCAST


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.

register:WEBCAST


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.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

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.

register:WEBCAST


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