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

NCOC lets $1.8-billion pipeline contract for Kashagan field

02/06/2015 North Caspian Operating Co. (NCOC) has let a $1.8-billion engineering and construction contract to ERSAI Caspian Contractor LLC, a subsidiary of Sa...

AOPL releases 2015 safety performance and strategic planning report

02/06/2015 The Association of Oil Pipe Lines is committed to further improvements despite a 99.99% safe petroleum liquids delivery rate, AOPL Pres. and Chief ...

PAA to expand Delaware basin crude pipeline systems

02/05/2015 Plains All American Pipeline LP (PAA) plans to build two Delaware basin crude oil pipelines and related gathering systems, to expand its existing B...

Alberta’s premier seeks more North American energy integration

02/05/2015 Better policy integration and cooperation will be needed for Canada, Mexico, and the US to fully realize the North American energy renaissance’s po...

Oil, gas infrastructure investments essential, House panel told

02/04/2015 Investments in oil and gas transportation and storage should move ahead because they are essential in continuing the US economic recovery and North...

Inpex starts development drilling at Ichthys field

02/04/2015

Inpex Corp. has started development drilling in Ichthys gas-condensate field in the Browse basin, about 200 km offshore Western Australia.

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

Live Oak LNG to build Calcasieu Ship Channel liquefaction, export site

02/03/2015 Live Oak LNG LLC, a subsidiary of Parallax Energy LLC, Houston, will invest $2 billion to develop a 5-million tonne/year liquefaction plant and LNG...

EPA suggests DOS reconsider Keystone XL climate impact conclusions

02/03/2015 The US Department of State might want to reconsider its conclusions regarding potential climate impacts from the proposed Keystone XL crude oil pip...
White Papers

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

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...
Available Webcasts


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

When 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.

register:WEBCAST



On Demand

Prevention, Detection and Mitigation of pipeline leaks in the modern world

Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST


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


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