OPEC HIKE PACES 1.4% RISE IN 1990 WORLD CRUDE OUTPUT

Robert J. Beck
Economics Editor

Total world crude oil production climbed 1.4% to 60.477 million b/d in 1990 despite the embargo of oil exports from Iraq and Kuwait and a sharp drop in Soviet output,

The surge came in response both to increased worldwide demand and stockbuilding spurred by uncertainty over future supplies stemming from the Persian Gulf crisis.

Although consumption in market economies slumped in fourth quarter 1990 because of higher oil prices, it rose about 600,000 b/d for the full year, International Energy Agency reports.

Stockbuilding also contributed to higher demand. Early in the year stocks were increased to take advantage of moderate prices and provide inventories for the higher seasonal demand in winter.

After the Iraqi invasion of Kuwait in early August, stocks were retained and even increased as a backstop against possible crude shortages later in the year.

Last year's world average crude oil output is the highest since the record 62.812 million b/d in 1979. Because of slumping demand in the early 1980s, production fell to a modern low of 52.956 million b/d in 1983.

Economic growth and lower oil prices have boosted demand for crude oil since then, particularly following the oil price collapse in 1986.

Last year crude oil production among the Organization of Petroleum Exporting Countries increased 6.1% to 23.347 million b/d, the highest level of OPEC output since 1980, when it averaged 26.841 million b/d. Average OPEC production peaked at 30.825 million b/d in 1979.

Production from the non-OPEC market economy (nonCommunist) countries averaged 22.584 million b/d in 1990, up 1.1% from 1989. Total output from all market economies averaged 45.931 million b/d in 1990, up 3.6% from the year before.

Production from the group that consists of Communist and former Communist nations averaged 14.546 million b/d in 1990, a drop of 4.8% from 1989. This decline was due mainly to a 6.2% slide in Soviet output.

OPEC PRODUCTION

At the start of 1990, OPEC's overall production quota was 22.086 million b/d. This was subsequently raised to 22.491 million b/d, to take effect in August. Through first half 1990 OPEC tended to produce over quota, averaging 23.944 million b/d. This contributed to the downward pressure on prices in the first half.

The embargo placed on crude oil exports from Iraq and Kuwait in August substantially changed OPEC's production concerns. The embargo removed about 4.2 million b/d of crude and product exports from the world market. As a result, other OPEC members with excess production capacity rapidly moved to boost output and make up for some of the loss.

OPEC production dipped to 20.159 million b/d in August last year, but it rapidly recovered, moving up to 23.933 million b/d by December. This increase helped brake the sharp runup in crude prices.

A substantial portion of the increase in OPEC output from July/August to December was attributable to a boost in Saudi Arabian production.

Saudi output surged to 8.3 million b/d by December from 5.4 million b/d in July and 5.6 million b/d in August. Average Saudi production in 1990 was 6.302 million b/d, up 26.2% from 1989.

The U.S. Central Intelligence Agency had been estimating Saudi production capacity at 7 million b/d.

Average production for 1990 was up for all of the OPEC countries except the two directly involved in the conflict.

Due to the embargo, Iraq's production fell to an estimated 450,000 b/d in the fourth quarter. Average output for the year decreased by 28.2% to 2.08 million b/d.

Kuwait's production fell to about 100,000 b/d in the fourth quarter. Output for the year averaged 1.079 million b/d, down about 32% from 1989.

Kuwait's production in July just prior to the invasion averaged 1.7 million b/d.

Production from the Neutral Zone also fell by 85,000 b/d due to Iraq's occupation of Kuwait.

Production in this area is shared between Kuwait and Saudi Arabia.

OPEC's share of the world oil market moved up again in 1990, increasing to 38.6% of the world total from 36.9% the year before. OPEC's share was 49.1% in 1979 and 29.9% in 1985.

OPEC's share of output from market economies moved up to 50.8% in 1990 from 49.6% the year before. In 1979 it held 63.4% of that market.

NON-OPEC OUTPUT

Production from non-OPEC countries with market economies climbed 246,000 b/d to 22.584 million b/d in 1990. Increases in a number of non-OPEC countries was partly offset by a big drop in the U.S.

Eleven countries posted production gains of more than 20,000 b/d: Norway 146,000 b/d, Australia 86,000 b/d, Oman 51,000 b/d, Syria 48,000 b/d, and the U.K. 47,000 b/d. Other nations with major increases were Brazil 39,000 b/d, Malaysia 37,000 b/d, Colombia 35,000 b/d, and Mexico 35,000 b/d.

Offsetting these increases were slides in U.S. production of 4% to 7.309 million b/d and Canadian output, down 2.6% to 1.518 million b/d.

Non-OPEC output was 17.76 million b/d in 1979. It moved up to 22.727 million b/d in 1985, taking market share away from OPEC. Since 1985, non-OPEC output has held steady at 22.3-22.8 million b/d.

WORLD DEMAND

IEA estimates oil consumption in market economies averaged 52.9 million b/d in 1990, up 1.1% from 1989's level.

Consumption in Organization for Economic Cooperation and Development countries in 1990 averaged 37.6 million b/d. IEA noted all growth in 1990 consumption was in developing countries, where demand moved up 4.1% to 15.3 million b/d from 1989 levels.

IEA estimates OECD consumption fell in North America 1.6% to 18.9 million b/d but increased in Europe 0.8% to 12.7 million b/d and in the Asia-Pacific region 3.4% to 6 million b/d.

The growth in 1990 consumption was less than IEA had anticipated earlier in the year, prior to the Iraqi invasion of Kuwait and the jump in oil prices. In its July report, IEA had projected 1990 world consumption would increase 1 million b/d from 1989, while OECD consumption would rise 400,000 b/d.

IEA now estimates OECD consumption in fourth quarter 1990 at 37.6 million b/d, compared with its earlier projection of 39.6 million b/d.

A slowdown in economic activity, coupled with fuel switching and conservation due to sharply higher oil prices, spurred a rare quarterly drop in second half, with the third quarter consumption at 37.9 million b/d. Fourth quarter consumption usually gets a substantial boost from increased winter fuel demand.

Energy Information Administration estimates U.S. demand for petroleum products was down 2.1% in 1990.

WORLD SUPPLY

On the supply side, IEA estimates 1990 non-OPEC total liquids supply- production of crude, condensate, and natural gas liquids-processing gain, and net imports from centrally planned economies (CPEs) at 28.8 million b/d.

IEA put total OPEC liquids supply at 24.9 million b/d in 1990, up 1.2 million b/d from the year before.

The net result was total supply of 53.7 million b/d in 1990 vs. total consumption of 52.9 million b/d and an estimated stock build of 800,000 b/d.

This daily increase resulted in a total stock build of 292 million bbl in 1990.

IEA said stocks on land in OECD countries increased 0.4% to 3.409 billion bbl from Jan. 1, 1990, to Jan. 1, 1991. Most of the increase in 1990 was in company stocks, which moved up 3.8%, while public stocks in OECD countries surged by 1.4%.

In terms of forward consumption, total stocks moved up to 96 days from 92 days at the start of 1990-the highest since 1983's high of 99 days.

The difference in the rates of increase in company stocks and petroleum consumption, 3.8% vs. 1.1%, will probably result in some stock drawdown in 1991.

Exports by CPEs to non-CPEs fell to an estimated 1.7 million b/d from 1.9 million b/d in 1989.

PRICES

World crude oil prices started out fairly strong at the beginning of 1990 with the average price of world export crude oil at $19.27/bbl in January.

OPEC production remained high as demand for petroleum products slumped after the winter heating season, and prices slipped. The average price of world export crude slipped to $13.49/bbl in June then rose to $14.93/bbl in July as OPEC attempted to force some production discipline.

Iraq's Aug. 2 invasion of Kuwait and the subsequent embargo of all crude oil product exports from Iraq and Kuwait sparked a sharp rise in crude oil prices. Prices peaked at an average $36.11/bbl the week of Sept. 28, 1990. Average monthly crude prices were $24.32/bbl in August, $30.85/bbl in September, and $33/bbl in October.

Weak demand owing to higher prices, fuel switching, and slower economic activity resulted in prices leveling off then turning down by yearend once consumers realized there was not going to be a massive shortage of crude oil.

The average price of world export crude oil was $29.92/bbl in November and $25.22/bbl in December. The latest data available shows the price at $17.29/bbl the week of Feb. 15, 1991.

Industry observers now expect prices to be very weak later in the year unless there is a sharp jump in consumption or OPEC again reaches a production quota agreement.

OUTLOOK FOR 1991

IEA is projecting even less growth in petroleum product consumption in 1991.

Consumption in non-Communist areas is projected to move up 0.9% to 53.4 million b/d. Again the growth will all be in developing countries, as OECD consumption is forecast to remain unchanged.

Total non-OPEC supply is expected to be off 0.4% at 28.7 million b/d. Liquids production is expected to decline 1 00,000 b/d, but exports from CPEs are projected to fall another 11.8% to 1.5 million b/d.

Total demand for OPEC oil will depend upon changes in stocks. With no change in the stock level, the average demand for OPEC liquids will be 24.7 million b/d in 1991,

down 0.8% from 1990. OPEC's NGL production is estimated at 1.9 million b/d and crude production at 22.8 million b/d.

With the expected sluggish increase in consumption in 1991, a stock drawdown of about 500,000 b/d could be expected, which would slice the call on OPEC crude to 22.3 million b/d.

Total OPEC production will have to be cut 700,000-1 million b/d in 1991 from fourth quarter 1990 levels, or excess oil entering the market will soften prices.

There will be a potentially greater excess production problem when crude output from Iraq and Kuwait enters the market. In second quarter 1991, demand for OPEC crude will fall to 20.8 million b/d and possibly lower if there is any stock drawdown.

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