Oil traders seem to be on a bear hunt these days. Or maybe it's a snipe hunt.
Phantom signs of market bears keep popping up among the members of the Organization of Petroleum Exporting Countries.
Oil markets were roiled in mid-July with spurious reports that Nigeria was about to bolt OPEC.
Compounding these concerns were reports that Venezuela would cast aside its production restraint altogether, resuming its maverick stance prior to the 1999 assumption of power by President Hugo Chávez-also later discounted.
OPEC mavericks?
The local newspaper report about Nigeria pulling out of OPEC was refuted by government officials. However, those same government officials claimed Nigeria received pressure from the US government to pull out of OPEC and thus be able to boost output. Feel free to take a few grains of salt with that claim.
Various press reports in mid-July suggested that Venezuela will step up flouting its quota out of concern for a budget crunch stemming from the loss of revenues caused by last April's general strikes and revolving-door coup aimed at Chávez.
A budget proposal recently issued by Caracas implies a second half output of more than 300,000 b/d above Venezuela's quota. And Venezuelan officials were reported as predicting production increases of 7-14% in 2003.
But these projections seem to be based more on wishful thinking than on willful flouting of quotas. New Mines and Energy Minister Rafael Ramirez, after the flurry of speculation over Venezuela's future with OPEC, insisted that any such increase in Venezuela's production would come only as part of an overall agreement by OPEC to boost output.
The upshot, says Ramirez, is that Venezuela is simply assuming economic recovery will necessitate an OPEC production hike in the months to come and basing its projections of oil output on that assumption.
There is every reason to believe that Venezuela is exceeding its production quota-as are others in OPEC. But the volumes involved are relatively minor compared with demand and inventory projections. While Petrologistics, Geneva, puts OPEC July production at 1.9 million b/d over quota (which it bases on tanker movements), it must be recalled that Iraq is not included in that figure. And Baghdad's production recently slumped, which has contributed to the continuing draw on crude stocks (Market Hotline, OGJ Online, July 19, 2002).
Russia vs. OPEC
Apparently the real bear for oil markets is a Russian one-but that one is still a cub.
Greater credibility could be assigned to the prospect of fresh inroads by Russia into OPEC market share than to the notion of Nigeria and Venezuela breaking ranks. Regarding the latter, why would these two countries risk an all-out market share war that Saudi Arabia will certainly win by pulling out all the stops on production-when just a little bit of cheating can help feather the nest while still keeping the OPEC marker basket price near the prized $22-25/bbl?
But there is no mistaking the intent of Russia's oil companies. That could be seen in the landmark delivery of the first direct shipment of Russian crude oil to the US early in July (OGJ Online, July 9, 2002).
This was clearly a highly publicized shot across the bow of OPEC-especially Saudi Arabia, which in May lost a chunk of US market share roughly equal to the one Russia gained.
Still, that threat is overblown, says Boston-based Energy Security Analysis Inc. ESAI contends that OPEC's market share will not shrink much more through 2005, while modest increases in the former Soviet Union's oil market share will come mostly out of the rest of the non-OPEC exporters' share.
"The main reason we do not see the 2000-02 trend of shrinking OPEC market share continuing is the expected recovery of oil demand in 2003 and after," said Sarah Emerson, ESAI managing director. "OPEC will not have to keep production under such a tight rein in 2003."
So that leaves a scenario of "a rising tide lifts all boats."
And you can't hunt bear from a boat.
(Online July 26, 2002; author's e-mail: [email protected])
