Saudi crude output at 30 year highs pushed up Opec production in August to levels seen before the Libyan civil war shut in supply, at just over 30mn b/d. Saudi Arabia produced 9.8mn b/d, 1.2mn b/d more than its output in January before Libyan production was disrupted. But Mideast Gulf shipments were steady to lower over the same period, suggesting that most of the increase in supply is meeting strong regional demand rather than offsetting lost Libyan output for importers.
Mideast Gulf Opec members say the increase in production by Saudi Arabia and fellow Gulf Co-operation Council members Kuwait, Qatar and the UAE has helped to cap a rise in oil prices. “Without such a measure, the oil price would have shot up much higher than the current level and would have caused a global crisis that would boost the global economic recession,” Kuwaiti oil minister Mohammad al-Busairi says.
Higher Opec output and the IEA stocks release of 60mn bl of mostly light sweet crude in August helped to cap the price increase. But prices remain high. Benchmark North Sea Dated is around $115/bl, and the action by Opec and the IEA may be too late to prevent a double-dip recession.
“Everyone is concerned about market developments and prices, in particular the negative signals and worries about economic growth from developed countries such as the US and Europe,” Iran's Opec governor, Mohammad Ali Khatibi, says. Iran holds Opec's rotating presidency.
Some Opec producers have seen strong demand from the non-OECD countries that are driving growth this year. But oil demand growth is faltering even in countries like Brazil, China and India as high prices weigh.
Opec expects demand growth of 1.2mn b/d this year, driven by non-OECD countries. But
Argusis less optimistic, predicting growth of only 600,000 b/d, down from 2.6mn b/d last year.
A slowdown in oil demand could put downward pressure on oil prices. But Opec hawks are likely to want to take action to avoid any dip in oil prices that would cut into their oil revenues. Iran is one of several Opec member countries that needs oil prices of $80/bl to fund expensive social programmes. “There might be some consultations among ministers if we are going to see high fluctuations in prices,” Ali Khatibi says.