Are markets assured of high oil prices for the next 5 years or so?
The Organization of Petroleum Exporting Countries has readily ceded market share to the likes of Russia and other non-OPEC oil exporters this year, preferring to defend its oil price target rather than fight for market share.
And the likelihood is that this strategy will hold for another 5 years, as global oil demand recovers from its recent collapse.
That's the thesis put forth by Boston think tank Energy Security Analysis Inc., which notes that that OPEC has made "enormous sacrifices" in market share this year.
Price vs. volume
"Notwithstanding current cheating above quotas and the likelihood that OPEC will raise quotas to 'absorb' that cheating late in 2002, we believe OPEC wil continue to choose price over the volume over the next 5 years," said ESAI Managing Director Sarah Emerson.
Among the rationales she cites for this view:
- OPEC can easily defend current market share as demand rises over the next 5 years.
- The magnitude of the increase in the former Soviet Union's market share is not that big.
- In order to take back market share, OPEC would have to initiate a market share war of sorts, and it would be difficult to control the resulting decline in oil prices.
Quota issues
If demand truly is going to come to the rescue of OPEC, and the organization need not worry about non-OPEC market share growth, then it follows that the fuss over certain members bolting the organization seems especially overblown, as suggested recently in this space (OGJ Online, July 26, 2002).
Another recent survey of OPEC members' production buttressed earlier reports of continuing quotabreaking. A Dow Jones survey earlier this month found that OPEC output rose by 237,000 b/d in July to 23.477 million b/d. Of that total, production by the OPEC 10 (which excludes Iraq) exceeded quota by a little over 1.77 million b/d last month (Iraq is excluded from OPEC quotas because its legal oil sales are controlled by the United Nations under the sanctions-related oil-for-aid program). Even linchpin Saudi Arabia was an aggressive quotabreaker, according to Dow Jones's survey, which pegged the kingdom's overage at 540,000 b/d.
So how have OPEC's alleged mavericks fared in comparison? The Dow Jones survey put Nigeria at 154,000 b/d over target in July and Venezuela at 193,000 b/d over quota last month. Algeria, which along with Nigeria is angling for a higher quota at the September ministerial meeting, exceeded its quota by 152,000 b/d in July.
OPEC laggards
In fact, a look at Dow Jones's survey shows each OPEC 10 member matching (Indonesia) or exceeding quota in July. The one laggard in OPEC is Iraq, whose production inched up 69,000 b/d month-to-month in July, according to the Dow Jones survey, but whose exports during the week ended July 26 plunged by 260,000 b/d to 1.14 million b/d. The US Energy Information Administration (EIA) estimates Iraqi production and exports have fallen by 300,000 b/d since May.
Another laggard of sorts-at least in proportion to its capabilities-may be Venezuela.
In making its case for higher oil production and exports, Caracas has claimed a productive capacity of 3.1 million b/d. But EIA disputes that figure, putting the number close to 2.75 million b/d. If the EIA's number is accurate, then Venezuela would have a tough time exceeding even its current OPEC quota of 2.5 million b/d by very much. The agency notes that, in fact, the recent surge in production of synthetic crude upgraded from extra-heavy Orinoco oil belt crude has masked a decline in Venezuela's conventional crude production capacity over the past several years.
Or, to paraphrase Mark Twain: It would seem that the reports of OPEC's demise have been greatly exaggerated.
(Online Aug. 16, 2002; author's e-mail: [email protected])
