WORLD OIL FLOW STEADY IN 1992; STABLE MARKET AHEAD FOR 1993
Robert J. BeckEconomics Editor
World crude oil production in 1992 was virtually unchanged from 1991.
Production last year averaged 59.96 million b/d, up only 17,000 b/d from 1991.
Substantial production declines in the C.I.S. and U.S. were offset by increases among members of the Organization of Petroleum Exporting Countries and a number of other countries outside the OPEC sphere (see table, p. 32).
OPEC oil production advanced 4.4% to 24.399 million b/d, while non-OPEC production slipped 2.8% to 35.561 million b/d. Excluding the C.I.S., non-OPEC production inched up 1.3% to 26.612 million b/d.
Figures from the International Energy Agency (IEA) show world demand for petroleum products moved up 300,000 b/d to 66.9 million b/d. This included an addition to stocks of an estimated 100,000 b/d.
World crude oil prices remained relatively stable during 1992. The average world price for export crudes increased a modest 130/bbl to $17.95/bbl.
IEA predicts world demand will continue to rise in 1993 and OPEC output will advance to meet this higher level. Even though OPEC production is expected to be up for the year, seasonal swings in demand can cause price fluctuations.
OPEC has adopted a reduced quota of 23-582 million b/d for second quarter 1993 to help maintain prices (OGJ, Feb. 22, p. 34).
OPEC PRODUCTION
OPEC oil production of 24.399 million b/d in 1992 was the highest since 1980 when it averaged 26.841 million b/d. Average OPEC production posted highs of 30.998 million b/d in 1979 and 31.298 million b/d in 1977.
The group's productive capacity has been advancing since the sharp drop following the Persian Gulf war. At that time, destruction of Kuwait capacity and a United Nations embargo on Iraqi oil exports slashed OPEC productive capacity to about 24 million b/d from 28-29 million b/d before the conflict. The rebound of Kuwaiti production and expanded capacity in Saudi Arabia and elsewhere has boosted current capacity to 25.5-26 million b/d.
The largest production increases during 1992 were in areas hit by the Persian Gulf conflict. Kuwait, the Neutral Zone, and Iraq all moved up substantially.
Kuwaiti production averaged 880,000 b/d in 1992, compared with only 136,000 b/d in 1991. Kuwait production was up to 1.37 million b/d in December 1992. That was dose to the 1.5 million b/d Kuwait was producing before the war.
Neutral Zone production, shared equally by Kuwait and Saudi Arabia, advanced 205,000 b/d in 1992 to 341,000 b/d.
The embargo on Iraqi oil exports slashed that country's production to 283,000 b/d in 1991. Flow rose to 425,000 b/d in 1992, largely because of increased internal consumption.
Iran also posted a significant increase in 1992, boosting production 97,000 b/d to 3.455 million b/d. Other significant increases were posted by Saudi Arabia, up 49,000 b/d to 8.137 million b/d, Qatar up 40,000 b/d to 425,000 b/d, and Nigeria up 37,000 b/d to 1.902 million b/d.
The sharpest declines occurred in the United Arab Emirates, where production fell 133,000 b/d to 2.285 million b/d, and Indonesia, where production fell 103,000 b/d to 1.345 million b/d.
OPEC production accounted for 40.7% of the world total in 1992, up from 39% in 1991. OPEC has been 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 production sliced OPEC's share to 29.9% in 1985.
NON-OPEC PRODUCTION
Non-OPEC oil production fell 1.017 million b/d to an average 35.561 million b/d for 1992. Production from non-OPEC members represented 59.3% of the world total in 1992, compared with 61% in 1991.
The decline was due to another sharp drop in C.I.S. production, which was down 1.347 million b/d to an average 8.949 million b/d in 1992. C.I.S. production fell 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 1992 was down 3.5 million b/d from the level 5 years earlier.
Production in other non-OPEC countries, other than the C.I.S., moved up 330,000 b/d in 1992 to 26.612 million b/d. This group accounted for 44.4% of the world total, up from 43.8% in 1991.
Fourteen non-OPEC members posted production gains of 10,000 b/d or more in 1992. The most significant gain occurred in Norway, where production was up 276,000 b/d to 2.141 million b/d.
Seven non-OPEC members, including the C.I.S., posted declines of 10,000 b/d or more. The second sharpest decline was in the U.S. with production down 268,000 b/d to 7.149 million b/d. Two of the largest producing countries in the world, the U.S. and C.I.S., had a combined drop of 1.615 million b/d in 1992.
OIL PRICES
Crude oil prices, relatively stable in 1992, did not have a major effect on oil demand. Prices have remained mostly level since the end of the Persian Gulf war in January 1991.
The price for world export crude oil averaged $17.95/bbl in 1992, down slightly from the average of $17.82/bbl the year before. Prices in 1992 varied from a low of $16.12/bbl in January to a high of $19.92/bbl the last week of June.
The average price for OPEC's basket of seven selected crudes slipped marginally in 1992, falling 2.3% to $18.73/bbl from $19.17/bbl in 1991. This was well below the $21/bbl that OPEC had set as a target. The inability of OPEC to achieve an average basket price close to the $21/bbl goal is the major reason for the recent reduction in production quotas.
Prices slipped even further during the first few weeks of 1993. The average export price for the first 7 weeks of this year was $16.51/bbl. The average for the OPEC basket of crudes was $17.37/bbl. But prices began to move up again following the OPEC quota agreement for lower second quarter production.
WORLD OIL SUPPLY
IEA estimates 1992 total world liquids supply of 67 million b/d, a slight advance from 66.8 million b/d in 1991. Total supply includes crude oil, condensate, and natural gas liquids production plus processing gain.
The last couple of years, since the conflict in the Persian Gulf, there has been some concern about adequate supply for the winter heating season due to the reduction in OPEC capacity. As a result, refiners have been adding substantially to stocks in the second and third quarters to insure adequate supplies for the winter heating season. This has reduced some of the seasonal fluctuation in oil demand.
Non-OPEC supply fell again in 1992, declining 900,000 b/d to 40.8 million b/d. Non-OPEC supply was 41.7 million b/d in 1991, 42.1 million b/d in 1990 and 42.5 million b/d in 1989. The decline has been due to a sharp drop in C.I.S. production, partially offset by increases in some other non-OPEC areas.
IEA data list OPEC liquids supply in 1992 at 26.2 million b/d, up 1.1 million b/d from 1991. Because of the sharp increase in OPEC production, total world supply of 67 million b/d out paced estimated demand of 66.9 million b/d, increasing world stocks by 100,000 b/d. This compares with a stock increase of 200,000 b/d in 1991 and 800,000 b/d in 1990.
Total stocks have been increased as demand continues to rise. The supply surplus in 1992 added about 36.6 million bbl to total world stocks. This compares with additions of about 73 million bbl in 1991 and 292 million bbl in 1990.
The stock build the last two years has been outside of the Organisation for Economic Cooperation and Development (OECD) countries. IEA estimates onshore stocks OECD countries fell in 1991 and 1992. OECD total stocks were 3.431 billion bbl at the end of 1990, slipped to 3.402 billion bbl at end 1991, and 3.373 billion bbl at yearend 1992.
In terms of days of forward consumption, stocks dropped from 97 days in 1990 to 94 days at yearend 1991 and 92 days at yearend 1992.
Government held stocks have continued to balloon while company stocks have fallen. Companies continue to look for ways to operate efficiently with lower stock levels and reduce stock carrying costs.
Public stocks moved up from 1.007 billion bbl at yearend 1990 to 1.015 billion bbl at yearend 1991 and 1.044 billion bbl at yearend 1992. Company stocks were boosted to 2.424 billion bbl at yearend 1990, but fell to 2.387 billion bbl at the end of 1991 and 2.329 billion bbl at yearend 1992. In days of forward supply, company stocks fell to just 64 days, lower than it was through the 1980s and early 1990s.
WORLD DEMAND
A major reason for the stability in 1992 world oil production was the small change in product consumption. IEA estimates world oil demand increased only 0.5% to an average 66.9 million b/d in 1992. This was up 300,000 b/d from the 66.6 million b/d the year before.
Total world demand has been inching up in recent years, climbing from 66 million b/d in 1989 and 66.2 million b/d in 1990.
Last year a sharp drop in C.I.S. consumption and a decline in eastern Europe were offset mainly by increased demand in OECD countries and in non-OECD Asian countries.
Petroleum product demand in the C.I. S. plummeted from 8.3 million b/d in 1991 to 7 million b/d in 1992, a drop of 15.7%. Demand averaged 8.4 million b/d in 1990 and 8.8 million b/d in 1989.
Demand in non-OECD eastern Europe also dropped, falling 100,000 b/d to 1.1 million b/d in 1992. Demand in those countries was 1.6 million b/d in 1990 and 1.8 million b/d in 1989.
Offsetting the declines in the C.I.S. and non-OECD Europe was a sharp increase in consumption in OECD industrialized countries to 38.5 million b/d from 38 million b/d in 1991. OECD demand was 37.9 million b/d in 1990 and 37.8 million b/d in 1989.
Demand in North American OECD countries was up 200,000 b/d at 18.8 million b/d.
For the U.S., the Energy Information Administration (EIA) estimates 1992 consumption at 17.009 million b/d, up 1.8% from 16.714 million b/d in 1991. The increase was due mainly to an upturn in economic activity.
IEA also cited modest increases in European OECD demand of 100,000 b/d to 13.5 million b/d and Pacific OECD demand of 100,000 b/d to 6.2 million b/d.
Economic growth in Europe was sluggish in 1991 and 1992. Growth in gross domestic product in OECD Europe averaged only 1.1% in 1992 and 1.4% in 1992. In Japan, economic growth slipped to 1.8% in 1992 from 4.5% in 1991 and 5.2% in 1990.
Some non-OECD areas also posted substantial increases in demand in 1992.
Demand in non-OECD Asia rose 500,000 b/d to 6.3 million b/d. And demand in the Middle East moved up 200,000 b/d to 3.7 million b/d. Estimated demand increases of 100,000 b/d were posted in China to 2.6 million b/d, Latin America to 5.4 million b/d, and Africa to 2.2 million b/d.
1993 OUTLOOK
Stronger economic growth in the OECD countries is expected to boost world demand in 1993. In fact, IEA predicts a larger increase than in the past 3 years. Demand will move up 600,000 b/d to an average 67.5 million b/d.
Another sharp drop in C.I.S. demand will be more than offset by increases in OECD industrialized countries and many non-OECD areas.
A large part of the growth will take place in OECD countries. OECD demand will move up 500,000 b/d to an average 39 million b/d this year.
Demand in North America is expected to rise 300,000 b/d to 19.1 million b/d. The most recent forecast by EIA calls for U.S. petroleum product demand to increase 300,000 b/d to 17.3 million b/d in 1993.
Demand also will advance 100,000 b/d in OECD Europe, increasing to 13.6 million b/d, and in OECD Pacific, increasing to 6.3 million b/d for 1993.
C.I.S. demand will fall another 800,000 b/d to 6.2 million b/d. C.I.S. demand in 1993 will be down 30% from 8.8 million b/d in 1989. IEA predicts the decline in non-OECD eastern Europe will be arrested in 1993, and demand will level off at 1.1 million b/d.
Because of the sharp drop in the C.I.S., total non-OECD demand will inch up 100,000 b/d in 1993 to 28.5 millon b/d. Sharp increases in several other non-OECD regions will more than offset the C.I.S. decline.
Demand in non-OECD Asia will jump up another 500,000 b/d to average 6.8 million b/d for 1993. Demand in Latin America will increase 200,000 b/d to 5.6 million b/d. Middle East demand also is expected to increase 200,000 b/d to 3.9 million b/d. An increase of 100,000 b/d to 2.7 million b/d is projected for China. Demand in Africa will remain at 2.2 million b/d.
IEA projects a decline of 600,000 b/d in non-OPEC supply in 1993 to 40.2 million b/d. The decline will be due to an additional 1 million b/d drop in C.I.S. liquids output, down to an average 8 million b/d.
Demand for OPEC oil will increase to fill the gap, moving up to cover increased demand and the decline in non-OPEC supply. The level of OPEC production also will depend on changes in stocks.
Total stocks moved up in 1990, 1991, and 1992 and did not add to supply. But they did add to demand for OPEC oil. During 1992, stocks were increased an amount equivalent to 100,000 b/d of supply.
Assuming no net change in the world stock level this year, demand for OPEC liquids will move up 1.1 million b/d to average 27.3 million b/d in 1993. This would include 2.2 million b/d of OPEC NGL and 25.1 million b/d in oil production.
The expected demand for OPEC oil will be close to current capacity. This should help stabilize the market in 1993 because there is less opportunity for substantial overproduction. Increased production from Kuwait has boosted OPEC capacity to about 25.5 million b/d. This is with production from Iraq constrained at 500,000 b/d.
A problem will arise for OPEC when Iraq reenters the oil export market. Some countries may be forced to cut production to help stabilize prices.
During 1993 demand for OPEC oil will be at its low point in the second quarter. Depending upon the use of stocks, demand for OPEC oil will drop to 23.7-24.2 million b/d, down from 24.9 million b/d in fourth quarter 1992.
Demand for OPEC oil will increase to 24.2-24.7 million b/d in the third quarter of this year, then jump to 26-26.9 million b/d in the fourth quarter.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.