OPEC is increasing oil
drilling at the fastest rate in 2 1/2 years
even as production exceeds its quotas by the equivalent of a supertanker of
crude a day and delegates prepare to pledge no increase in output.
The 12-nation group boosted its
number of oil and gas rigs 8.4 percent in January and February, the biggest
two-month gain since June 2007, data from Baker Hughes Inc. show. OPEC members
excluding
Iraq
pumped 26.8 million barrels a day last month, 1.9 million more than targeted,
data compiled by Bloomberg show. Shipments will rise again this month,
according to tanker- tracker Oil Movements.
While oil prices recovered from a
four-year low at the end of 2008 as OPEC announced a record supply cut, excess
production means the doubling in oil prices since then may have run its course,
according to the Centre for Global Energy Studies and Commerzbank AG. The
premium charged for crude deliveries in 2015 has plunged 51 percent in three
months, indicating investors are less concerned of future shortages.
“OPEC will have to show its
mettle,” said
Leo Drollas,
deputy director of the CGES in
London
, which was founded
by former Saudi oil minister
Sheikh
Zaki Yamani. The consultant predicts Brent crude will fall 25 percent to
$60 in the fourth quarter of this year. “If they can’t hold discipline, we’re
looking at prices going to $50 by 2015.”
Vienna
Meeting
Oil surged last year as the
Organization of Petroleum Exporting Countries curtailed as much as 3.7 million
barrels a day of output and the global economy emerged from its worst slump
since World War II. Forty-two of 44 analysts surveyed by Bloomberg predict the
organization will maintain its official 24.845 million barrel-a-day
quota when ministers meet in
Vienna
on March 17.
In a March 10 report the group
estimated that its current production is 1.5 million barrels a day more than
the demand for its crude in the second quarter, after analyzing non-member
production and global consumption.
Crude has risen 2 percent in the
past two weeks, including a 1.1 percent retreat on March 12 on the New York
Mercantile Exchange.
OPEC plans to add 12 million barrels
to its daily production capacity by 2015, equal to what
Saudi Arabia
can pump today. The gains would exceed the expected growth in demand, according
to the International Energy Agency.
Exploration Rigs
OPEC has taken on an extra 22 rigs
this year, raising its total to 283, as increases in
Africa
compensate for a
reduction in
Saudi Arabia
and
Venezuela
, the Baker Hughes data show.
Producers
outside of the organization have
added the same number to total 785 rigs, a gain of 2.9 percent.
The Baker Hughes rig count is a
barometer of current drilling and an indicator of future oil and gas supplies. The
Houston-based company, the world’s third-biggest oilfield- services supplier,
says its figures represent the number of rigs exploring and developing new
fields, not ones for maintenance or “workover” activities.
“Despite OPEC’s production
capacity goals being very aggressive, I think a large part of it will be
sustainable,” said
Eugen
Weinberg, an analyst at Commerzbank AG in
Frankfurt
. “The chances for
spare capacity increasing are larger than it narrowing. This potentially puts a
ceiling on oil prices. Even if demand increases strongly, price increases
should be dampened.”
Saudi Heavy Oil
Members are reviving some of the
35 projects delayed by the recession, OPEC Secretary-General
Abdalla El-Badri said in December. Saudi Aramco’s
Manifa
heavy oilfield is “back on track” for completion in 2015, after being
halted, according to the Paris-based IEA.
Nigeria
increased its oil-rigs the most among OPEC states in February, boosting the
count to 12 from 7. The country may lobby OPEC for a
higher output ceiling to compensate for production lost over
four years to rebel attacks, Austen Oniwon, a group executive director at
state-run Nigeria National Petroleum Corp., said in a March 9 interview in
Cape Town
.
The biggest prospect for
additional OPEC oil lies with
Iraq
.
The war-torn country signed deals last year with BP Plc, Royal Dutch Shell Plc
and
Exxon Mobil Corp. to help boost production to eventually
rival that of
Saudi Arabia
,
OPEC’s largest exporter.
Goldman Sachs, Bank of America
Merrill Lynch and Societe Generale SA expect the oil demand recovery in
emerging economies after the recession will require new crude supply. Goldman
Sachs sees crude reaching $96.50 a barrel within 12 months, while Societe
Generale forecasts an average of $104 in 2012 and Merrill says prices may rise
as high as $150 in 2014.
Wall Street Forecasts
“If the OPEC rig count is
increasing, and OPEC has plans to grow capacity down the road, that doesn’t
strike me as bearish,” said
Mike
Wittner, head of oil market research at Societe Generale in
London
. “In fact it’s
part of the bullish story, because non-OPEC supply has already hit a plateau so
only OPEC can meet long-term global demand growth.”
Oil’s advance has failed to meet
the most optimistic Wall Street analyst forecasts. Goldman Sachs predicted that
crude would reach $85 a barrel before the end of 2009. The price of options
contracts allowing investors to buy $100 crude for December delivery has fallen
60 percent since October.
The OPEC rig count last jumped in
mid-2007, rising more than 10 percent through May and June as oil prices
rallied toward $75 a barrel on accelerating demand from
China
and
India
. The rig count advanced with crude until October 2008, when a 10- month
slump started as the banking crisis rattled the global economy.
Forward Curve Flattens
Increased drilling will have a
greater impact on prices in the years ahead than on the rest of 2010, IEA
Executive Director
Nobuo
Tanaka said in a March 10
interview in
Houston
.
The forward curve graph of future
prices is flattening as traders anticipate greater availability of oil. The
premium for crude to be delivered in 2015 compared with this year was $6.08 a
barrel on March 12, down from $12.42 three months earlier.
“The world is still over-supplied,”
Edward Morse, head of
commodities research at Credit Suisse Group AG, said in a March 9 interview in
Houston
.
“On the supply side
Iraq
overwhelms everything else.”
Iraq
’s
oil exports reached the highest level in more than a year last month, jumping
7.4 percent to 2.07 million barrels per day, according to the country’s Oil
Ministry.
Estimates collated by OPEC show
the group’s adherence to its 4.2 million barrel-a-day supply cut, the biggest
in its 50- year history, has withered to 53 percent as the recovery in oil
prices above $80 a barrel spurs members to exceed their allocations.
Shipments Rising
Production from the 11 OPEC
members bound by quotas rose to 26.811 million barrels a day in February, the
organization said in a March 10
report.
Shipments will increase 0.9 percent by the end of the month, according to Oil
Movements based in
Halifax
,
England
.
Saudi Arabia
sits on 4 million barrels a day of idle capacity that can be started
when demand climbs.
Iran
,
Angola
and
Nigeria
are all pumping more than promised. Among OPEC’s 12 members, only
Iraq
is exempt from limits.
“
Iraq
doesn’t have a formal quota and
Nigeria
is acting like it doesn’t,” said
David Kirsch, director of oil markets
at PFC Energy, a consulting company in
Washington
.
“The potential of
Iraq
to substantially increase its production over the next few years has really
changed the supply dynamic.”
While the economy is recovering,
OPEC Secretary-General el- Badri said Feb. 2 that ministers are unlikely to
lift their quota.
Libya
is proceeding with plans to bolster production capacity,
Shokri Ghanem
, the chairman
of
Libya
’s National Oil Corp., said in a March 9 statement on the company’s Web
site. Even so, at the March 17 OPEC conference, “no new decision is expected.”
(
from
Bloomberg)