2011: 'Odd year' for oil

In case you didn’t noticed, 2011 was “an odd year”—one of “volcanic change” that yet led to circumstances “conducive” to maintaining consistent oil prices, said Paul Horsnell, managing director of Commodities Research at Barclays Capital, London.

He said, “The contradiction of 2011 is that once the pattern of the key dynamics was set, we have found it a year that has enabled the maintenance of consistent price forecasts for global benchmarks. Stability in price dynamics has coincided with instability in the basic building blocks that help determine the main frameworks for the oil market.”

With the notable exception of West Texas Intermediate, benchmark crudes set record price averages last year, “in most cases well above $100/bbl,” Horsnell reported. The Organization of Petroleum Exporting Countries’ basket of benchmark crudes averaged above $100/bbl for 11 consecutive months and was expected to set a record average. On Jan. 3, OPEC reported an average basket price of $107.46/bbl for 2011, up from $77.45/bbl in 2010. It was the best year ever for OPEC revenues with record prices and record production, including NGLs.

“Despite the significant slowdown in demand growth in the second half of the year, global oil demand, too, is on track to reach a record high, even after allowing for delayed revisions to Organization for Economic Cooperation and Development demand. Meanwhile, although the absolute level of inventories is higher (in line with global oil demand), the rate of drawdown in stocks last year was near record levels,” Horsnell said.

Like most analysts, Horsnell expected a slowdown in world demand for crude compared with the exceptional growth rates of 2010, but demand growth weakened more than anticipated. As a result, Barclays Capital lowered its 2011 global demand growth forecast some 600,000 b/d as the European debt crisis intensified and global demand slowed. “In midyear the flow of data suggested a far more serious weakening was in place, but a stronger outturn in the second half kept the dynamics more positive,” he explained. “No doubt the Fukushima earthquake had a strong negative…effect on global manufacturing, while policymakers on both sides of the Atlantic struggled to maintain growth.” OECD oil demand weakened with higher oil prices and dragged the global growth profile lower.

Distillates outperform

However, Horsnell said, “We did expect the middle of the barrel to outperform, and that it did with élan. Record-high diesel demand, supported by extremely strong non-OECD demand for the middle of the barrel and robust internal trade in the OECD, was the key supportive factor for global demand this year, while gasoline languished in the face of high prices.”

He said, “Any disappointments on the demand side have on average been outweighed by disappointments on the supply side, and in particular the spectacular deceleration in non-OPEC supply after the first quarter started off on a strong note with non-OPEC supply in January increasing by almost 1 million b/d, continuing the momentum seen across the fourth quarter of 2010.” Despite strong growth in production of unconventional liquids, non-OPEC supply growth virtually ground to a halt. Horsnell blamed underperformance in the North Sea, technical issues in Brazil and Azerbaijan, decline rates in China, fires in Canada, strikes in Kazakhstan, and geopolitical disruptions in Sudan, Yemen, and Syria.

“The only bright spot has been the US where the momentum in oil shales has continued to tick higher, helping offset some of the weakness from the rest of the world,” he said.

Rather than becoming more proactive last year, Horsnell said, “OPEC was faced by an unprecedented event in the form of the Arab Spring, the greatest impact of which was to lose more than 450 million bbl of Libyan light, sweet, diesel-rich oil over the course of the year. OPEC was initially slow to react, and this was made worse by its meeting in June, which ended without any consensus or decision. However, part of the problem stemmed from the fact that the quality of the existing spare capacity was heavy and sour in nature, and hence to use it as a replacement for light, sweet crude was simply not fungible.”

He said, “Ultimately, trade flows had to adjust, with more North African crudes swinging into Europe and additional Middle Eastern oil heading towards Asia, but the adjustment was hardly instantaneous. Nonetheless, Saudi Arabia and a few other members such as UAE and Kuwait, which held some spare capacity, unilaterally increased output, with OPEC-12 production currently at a 3-year high above 30 million b/d.”

(Online Jan. 3, 2012; author's e-mail: samf@ogjonline.com)

Related Articles

Energy consumption to escalate

07/30/2013 World energy consumption will jump 56% in the next 30 years, driven by growing demand in developing countries, the US Energy Information Administra...

US, Mexico energy trade in flux

05/28/2013 Energy trade between the US and Mexico is in flux with rising crude production in the US, falling production in Mexico, and rising Mexican demand f...

Foreign crude supply concentrated

04/29/2013 It’s no secret the jump in US oil production in recent years has dropped imports of foreign crude to the lowest It’s levels since 1997—down 1.3 mil...

Corn, ethanol prices squeeze profit

03/25/2013 Last summer, US prices for ethanol and corn reached such an imbalance that production costs exceeded revenue at relatively simple ethanol plants, t...

Working on the railroads

02/26/2013 The rapid increase of North American crude production has resulted in pipeline bottlenecks in some areas, forcing more reliance on rail transportat...

War, weather issues affect energy

01/28/2013 The fatal 4-day siege at the In Amenas gas production plant in eastern Algeria near the Libyan border that left 81 people dead “heightens concerns ...

2013 looks a lot like 2012

12/31/2012 New Year 2013 looks as though it will be much like the old one. There’s rioting in Egypt, confrontation with Iran, continued crisis in the Euro-zon...

Political crisis weighs on oil

11/26/2012 On Nov. 21, Egyptian officials announced a ceasefire agreement—which they helped broker—between Israel and Hamas leaders to end a week of fighting.

Storms, oil, and elections

10/29/2012 Hurricane Sandy was bearing down on the East Coast on Oct. 29, disrupting oil supplies, energy demand, and early voting in the last full week befor...

White Papers

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

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

Available Webcasts



The Future of US Refining

When 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

When 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



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


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