WORLD'S 1993 OIL FLOW SLIPS; DEMAND TO MOVE UP IN 1994

Robert J. Beck
Economics Editor

World crude oil production in 1993 was down slightly from the year before.

Production averaged 59.752 million b/d, off 287,000 b/d from 1992, largely because of production declines in the Commonwealth of Independent States (C.I.S.) and U.S. Those declines were offset in part by increases among members of the Organization of Petroleum Exporting Countries as well as in regions such as the North Sea and other non-OPEC areas (see table, p. 87).

OPEC crude oil production advanced 2.3% to 24.637 million b/d while total non-OPEC flow declined 2.4% to 35.115 million b/d. Excluding the C.I.S., non-OPEC production increased 0.9% to 27.261 million b/d.

International Energy Agency (IEA) figures show world demand for petroleum products fell 100,000 b/d in 1993 to average 67 million b/d for the year. This included a stock build estimated at 400,000 b/d.

With weak demand and excess crude oil to add to stocks, world oil prices fell during 1993. The world price for export crudes fell 11.9% to average $15.81/bbl in 1993, compared with $17.95/bbl in 1992. Price at the end of last year slipped further to $12.44/bbl.

IEA expects world demand to move up this year. However, it is still doubtful whether OPEC production will have to expand to meet the higher level of consumption. That will depend on decisions about additions to stocks.

If there are no net additions to stocks in 1994, demand for OPEC crude will remain at close to the 1993 level. But if stocks are drawn down, the call on OPEC oil could fall.

It does not appear that the increased oil demand anticipated by IEA will be big enough to give a significant boost to crude oil prices. Prices will depend more on a new production quota OPEC likely will adopt and the willingness of members to adhere to quotas.

OPEC PRODUCTION

OPEC's 1993 crude production 24.637 million b/d was the highest since 1980's 26.841 million b/d. The group's annual production hit historical highs of 30.998 million b/d in 1979 and 31.298 million b/d in 1991.

OPEC productive capacity has been rising since the Persian Gulf conflict of 1990. At that time, heavy damage to Kuwait's capacity and the U.N. embargo on Iraqi oil exports slashed OPEC capacity to an estimated 24 million b/d, down from 28-29 million b/d before the war.

Since the end of the war, the resurgence of Kuwaiti production and expanded capacity in Saudi Arabia, Iran, ind elsewhere has boosted OPEC's current productive capacity to an estimated 29.3 million b/d.

Five OPEC members posted 1993 production increases from a year earlier, while six showed a decline and one remained the same.

By, far the largest increases in 1993 were chalked up by Kuwait and Iran. Kuwait continued on the path of rapid recovery, boosting production by 819, 000 b/d to an average 1. 869 million b/d. That included 50% of production from the Neutral Zone.

Kuwait production averaged 1.05 million b/d in 1992 and only 200,000 b/d in 1991. Kuwait's production at the end of last year was averaging 2 million b/d. Kuwait was producing 1.8-1.9 million b/d prior to the conflict.

Iran boosted its flow by 182,000 b/d to average 3.637 million b/d for the year. Production averaged 3.455 million b/d in 1992 and 3.358 million b/d in 1991.

The embargo on crude oil exports slashed Iraq's production to 283,000 b/d in 1991. Production increased to 425,000 b/d in 1992 and to 448,000 b/d last year. Increased internal consumption and some overland bootleg exports through Jordan are the major reasons for production hikes.

The other two OPEC countries posting increases in 1993 were Venezuela, up 21,000 b/d to an average 2.335 million b/d, and Qatar up 4,000 b/d to 429,000 b/d.

The largest reductions were posted by Saudi Arabia with production down 225,000 b/d to an average 8.082 million b/d, Libya down 124,000 b/d to 1.369 million b/d, and the United Arab Emirates down 92,000 b/d to 2.193 million b/d.

Posting modest declines were Indonesia, down 20,000 b/d at 1.326 million b/d, Algeria down 19,000 b/d at 753,000 b/d, and Nigeria down 6,000 b/d at 1.896 million b/d.

Gabon's production remained at 300,000 b/d.

OPEC production amounted to 40.1% of the world total in 1993 vs. 40.1% in 1992 and 39% in 1991. OPEC has been steadily regaining market share since hitting a recent low in 1985.

OPEC production was more than 50% of the world total in the 1970s. Declining world petroleum demand and increased non-OPEC oil flow slashed OPEC's share to 29.9% in 1985.

OPEC QUOTA

OPEC is expected to adopt a new quota at its Mar. 24 ministerial meeting. Effective with the second quarter, it likely will be designed to better balance world oil supply and demand.

OPEC has been trying to create a balance that will boost prices. In the past it has stated a price objective of $21/bbl, but it has not been able to achieve anything close. The average 1993 price for the OPEC marker basket of seven crude oils was $16.69/bbl.

OPEC's quota for fourth quarter 1993 and extending into first quarter 1994 was 24.52 million b/d. During the first quarter of last year the quota stood at 24.582 million b/d, then was trimmed to 23.582 million b/d for the second and third quarters. That placed the average quota for 1993 at 24.067 million b/d.

Average production for the year exceeded the average quota by 570,000 b/d - only 2.4% above quota but large enough to place substantial downward pressure on prices.

Kuwait and Iran were the major culprits in overproduction.

Kuwait tended to ignore the quota agreement and restored production as rapidly as possible. The OPEC quota for Kuwait was increased from 1.5 million b/d in first quarter 1993 to 1.6 million b/d during the next two quarters and to 2 million b/d for the fourth quarter. The average quota for the year was 1.675 million b/d - vs. production that averaged 1.869 million b/d. That was 194,000 b/d above the target.

Iran's average quota for the year was 3.443 million b/d. Production averaged 3.637 million b/d, also 194,000 b/d above quota.

Two other OPEC members also significantly exceeded their quotas. Nigeria was 75,000 b/d above quota, Qatar 57,000 b/d above quota.

The biggest OPEC member, Saudi Arabia, held production close to its quota throughout the year. Production averaged 17,000 b/d below its average quota for the year.

Production for most of the other OPEC countries was quite close to average quotas during 1993.

Venezuela was 27,000 b/d above quota, Iraq 23,000 b/d above, Gabon 14,000 b/d above, Algeria 8,000 b/d above, and UAE 7,000 b/d above. Indonesia was 8,000 b/d below quota and Libya 6,000 b/d below quota.

OPEC has had difficulty, with member country compliance during previous quota periods. This often has resulted in excess crude oil being offered to the market and subsequent lower prices. That has been particularly true during seasonal lows in demand.

That appears to have been true in 1993 as well.

OPEC production averaged close to 24.5 million b/d during second and third quarters 1993 when the quota was 23.6 million b/d. An average 1.1 million b/d was added to world stocks during that period, contributing to declining prices later in the year.

IEA estimates OPEC production at 24.77 million b/d for last January, only about 250,000 b/d above the first quarter quota. However, demand for OPEC oil is expected to drop substantially in the second quarter, and production will have to be adjusted accordingly or prices may fan even further.

OPEC PRODUCTION

Non-OPEC crude production fen 850,000 b/d to an average 35.115 million b/d during 1993. That volume amounted to 58.8% of the world total compared with 59.9% in 1992 and 61% in 1991.

C.I.S. production was down 1.095 million b/d to an average 7.854 million b/d after falling 1.347 million b/d in 1992, 1.07 million b/d in 1991, and 750,000 b/d in 1990. The peak in C.I.S./U.S.S.R. production was 12.48 million b/d in 1987. Production in 1993 was down 4.6 million b/d from the level 6 years earlier.

Production in other non-OPEC countries advanced 245,000 b/d in 1993 to 27.261 million b/d. This group's share of world production advanced to 45.6% in 1993 from 45% in 1992 and 43.8% in 1991. C.I.S., in sharp contrast, saw its market share plunge to only 13% in 1993 from 22.3% in 1987.

Seventeen non-OPEC countries posted production gains of 10,000 b/d or more in 1993.

For the second straight year, Norway chalked up the most significant gain. Its production jumped 151,000 b/d to a total of 2.288 million b/d. Norwegian production increased 272,000 b/d in 1992.

U.K. production also increased significantly last year, rising 94,000 b/d to 1.933 million b/d. Increases were also posted by Papua New Guinea 74,000 b/d, Canada 65,000 b/d, China 63,000 b/d, and Syria 59,000 b/d.

Ten non-OPEC countries, including the C.I.S., posted declines of 10,000 b/d or more in 1993.

The second largest drop occurred in the U.S., where 1993 production was down 329,000 b/d to 6.842 million b/d. Production fell 246,000 b/d in 1992.

Two of the largest producing countries in the world, the U.S. and C.I.S., posted a combined drop of 1.424 million b/d in 1993, following a combined drop of 1.593 million b/d in 1992.

A few other countries posted significant declines. Australian production fell 37,000 b/d, while India was down 26,000 b/d, Cameroon down 20,000 b/d, Angola down 16,000 b/d, Malaysia down 16,000 b/d, and Trinidad down 14,000 b/d.

WORLD LIQUIDS SUPPLY

IEA estimates 1993 total world liquids supply of 67.4 million b/d, up from 67.2 million b/d in 1992. Total supply includes production of crude oil, condensate, and natural gas liquids, along with refinery processing gain.

Following the conflict in the Persian Gulf, there was concern about adequate crude oil supply for the winter heating season due to the reduction in OPEC capacity. As a result, refiners have added substantially to stocks in the second and third quarters to insure adequate supplies for the heating season. This reduced some of the seasonal fluctuation in crude oil demand.

The pattern was similar last year. Total world supply varied only 1.5 million b/d between the low of 66.6 million b/d in the second quarter and 68.1 million b/d in the fourth. This is much less than the swing in world consumption of petroleum products, which varies from high quarter to low quarter by nearly 3 million b/d.

Total non-OPEC supply fell again in 1993, dropping 600,000 b/d to 40.5 million b/d.

Non-OPEC supply was 41.1 million b/d in 1992, 41.8 million b/d in 1991, 42.1 million b/d in 1990, and 42.5 million b/d in 1989. The decline has been mainly due to the sharp drop in C.I.S. production.

IEA data show total OPEC liquids supply in 1993 at 26.9 million b/d, up from 26.2 minion b/d in 1992. The OPEC increase boosted world supply to 67.4 million b/d, compared with estimated demand of 67 million b/d, increasing world stocks by 400,000 b/d. That compares with a stock increase of 200,000 b/d in 1992, no change in 1991, and an increase of 500,000 b/d in 1990.

Surplus supply in 1993 added about 146 million bbl to world stocks. This compares with an addition of about 73 million bbl in 1992 and none in 1991.

Much of the stock increase last year occurred among members of the Organisation for Economic Cooperation and Development (OECD).

Total stocks on land in OECD countries increased to an estimated 3.474 billion bbl at yearend 1993. This was up from 3.401 billion bbl at the end of 1992. The increase last year followed 2 years of decline when OECD stocks fell 37 million bbl from 3.438 billion bbl at yearend 1990.

Both government controlled and company stocks advanced in 1993. Companies continue to took for ways to operate efficiently with lower stock levels and ways to reduce stock carrying costs. But a minimum stock level is required to maintain operating efficiency.

Government controlled stocks increased to 1.085 billion bbl at yearend 1993, from 1.056 billion bbl at yearend 1992, 1.019 billion bbl at yearend 1991, and 1.012 billion bbl at yearend 1990.

Company stocks rose to 2.39 million b/d at yearend 1993 from 2.346 billion bbl at the end of the previous year. But this is still down from yearend 1990 when company stocks were 2.419 billion bbl.

Company stocks represented 65 days of forward supply at end 1993, up from 64 days of supply at yearend 1992. These are some of the lowest stock levels relative to demand that have been posted throughout the 1980s and 1990s.

WORLD DEMAND

A key reason for 1993's small change in world crude production was the small shift in product consumption.

IEA reckons world oil demand slipped a bare 0.1% to an average 67 million b/d in 1993. This was down 100,000 b/d from the 67.1 million b/d in 1992.

Total world demand had been inching up in recent years, increasing from 66 million b/d in 1989 to 66.5 million b/d in 1990 and 66.9 million b/d in 1991.

Last year another sharp drop in C.I.S. consumption was only partially offset by increased demand in the OECD countries and developing countries.

OECD demand moved up 200,000 b/d solely on the strength of increased North American consumption. Demand in OECD Europe and OECD Pacific fell due to sluggish economic activity.

Consumption in the OECD industrial countries increased to an estimated 39.1 million b/d in 1993 from 38.9 million b/d in 1992. OECD demand was 38.3 million b/d in 1991 and 38.1 million b/d in 1990.

Demand in North American OECD countries was up 300,000 b/d in 1993 at 19.2 million b/d. Demand was 18.9 million b/d in 1992 and 18.6 million b/d in 1991.

The Energy Information Administration (EIA) estimates U.S. 1993 consumption was 17.179 million b/d, up 146,000 b/d from 1992. The increase was due to the upturn in economic activity and colder weather than a year earlier.

IEA figures show a drop in OECD Europe demand of 100,000 b/d to an estimated 13.6 million b/d and a drop in OECD Pacific demand of 100,000 b/d to 6.2 million b/d. Economic activity in western Europe was sluggish, and there was mild weather in the fourth quarter.

Latest estimates from the OECD show the inflation adjusted gross domestic product for OECD Europe fell 0.2% in 1993. GDP for Japan fell 0.5% and helped drag down petroleum demand in the Pacific area.

Petroleum product demand in the C.I.S. continued to plummet, falling from 6.9 million b/d in 1992 to 5.6 million b/d in 1993. That followed a 16.9% drop in 1992. Demand in the C.I.S. was 8.3 million b/d in 1991, 8.5 million b/d in 1990 and 8.8 million b/d in 1989. C.I.S. demand in 1993 was down 3.2 million b/d from the level only 4 years earlier.

Demand in non-OECD eastern Europe stabilized at 1.2 million b/d in 1993 after falling for several years. Demand was 1.4 million b/d in 1992, 1.6 million b/d in 1990, and 1.8 million b/d in 1989.

Some non-OECD areas also showed increases in demand in 1993.

Demand in non-OECD Asia increased 400,000 b/d to 6.8 million b/d. Estimated demand increases of 200,000 b/d were posted for the Middle East at 3.8 million b/d, Latin America at 5.6 million b/d, and China at 2.9 million b/d. An estimated demand increase of 100,000 b/d was posted in Africa to 2.1 million b/d.

1994 OUTLOOK

Stronger economic growth among OECD countries is expected to boost world oil demand in 1994.

IEA predicts a larger increase than in the past 3 years. Demand is forecast to move up 600,000 b/d to an average 67.6 million b/d.

Another sharp drop in C.I.S. demand will be more than offset by increases in OECD industrial countries and in many non-OECD areas. OECD demand is projected to move up 400,000 b/d to average 39.5 million b/d this year.

IEA predicts North American demand will advance 300,000 b/d to 19.5 million b/d. The most recent forecast by EIA calls for U.S. petroleum product demand to increase 483,000 b/d to 17.662 million b/d in 1994.

Demand is expected to be up 100,000 b/d in both OECD-Europe, increasing to 13.7 million b/d, and OECD-Pacific, increasing to 6.3 million b/d for 1994.

C.I.S. demand is projected to fall another 600,000 b/d to average 5 million b/d in 1994. C.I.S. demand will be down 43.2% from the level of 8.8 million b/d 5 years earlier.

IEA predicts non-OECD eastern Europe demand will remain at 1.2 million b/d as economic activity stabilizes.

Despite the sharp drop in the C.I.S., total non-OECD demand is projected to move up 200,000 b/d in 1994 to 28.1 million b/d. Sharp increases in several non-OECD regions are expected to more than offset the C.I.S. decline.

Demand in non-OECD Asia is expected to jump another 300,000 b/d to average 7.1 million b/d for 1994. Demand in China is projected at 3.1 million b/d, up 200,000 b/d from 1993, while demand in Latin America will increase 100,000 b/d to 5.7 million b/d, Middle East demand will increase 100,000 b/d to 3.9 million b/d, and demand in Africa will remain at 2.1 million b/d.