Opec production rose last month to near levels before the outbreak of civil war shut in Libyan supply. An increase in output from Saudi Arabia and Angola helped to push Opec production to 29.98mn b/d in July, up by almost 250,000 b/d on the month. Saudi Arabia's production was up by 200,000 b/d to its highest level in three years. But Mideast Gulf sailings were little changed, suggesting that much of the increase in supply is moving to the domestic market to meet strong summer demand for air conditioning.
Output from Opec's Gulf Co-operation Council members, Saudi Arabia, the UAE, Kuwait and Qatar, was more than 900,000 b/d higher than in May, before their pledge to raise production to meet rising global demand in the second half of the year. They made the pledge after the Opec meeting in Vienna on 8 June failed to reach an output agreement.
Some Opec members are warning against any further increase in Opec supply. “We cannot flood the oil market, and we cannot give Nato a blank cheque to bomb any Opec producer and expect other Opec producers to make up for the production lost as a result of the bombing,” Venezuelan energy minister Rafael Ramirez says. “What is happening in the US and EU economies is very serious,” Ramirez says. Venezuela and other Opec countries “cannot repeat the errors of 1998 when the Asian countries were in crisis and the market was flooded with oil, causing the price of oil to collapse to under $10/bl”.
Demand growth is slowing.
Argus expects growth of only 750,000 b/d this year, down from earlier projections of 1.7mn b/d, while Opec puts demand growth at 1.36mn b/d. High prices of over $110/bl for benchmark North Sea Dated are weighing on demand. But prices have risen because Opec production has fallen short of demand.
Venezuela — together with Iran, Algeria, Angola, Libya and Ecuador — opposed Saudi Arabia's proposal at the 8 June Vienna meeting to increase supply by 1.5mn b/d. Venezuela needs oil prices to remain high to fund extensive social programmes. Opec should raise Venezuela's crude production quota, Venezuelan president Hugo Chavez said on 31 July, after the group acknowledged that the South American producer had hiked its crude oil reserves above those of Saudi Arabia. But Venezuela lacks the spare capacity to raise production.