The oil market has been rocked by upheaval in the last 1,000 days, from revolution in Libya and an embargo on Iran's oil sales to a 6 million barrel rise in world oil use and an astonishing resurgence in U.S. oil production.
The oil market has been rocked
by upheaval in the last 1,000 days, from revolution in Libya and an embargo on
Iran's oil sales to a 6 million barrel rise in world oil use and an astonishing
resurgence in U.S. oil production.
Since January 2010, though, OPEC's reference price for its basket of crudes has
averaged at its unofficial target of $100 a barrel, while the group's
production holds near 30 million barrels a day.
Oil ministers from the Organization of the Petroleum Exporting Countries aren't
expected to change policy when they meet in Vienna on Wednesday. They may set a
date for review talks in the middle of 2014, a time when circumstances could
test the limits of OPEC's ability to hold prices steady over the next 1,000 days.
Behind closed doors this week, ministers are expected to start wrangling over
the need for Saudi Arabia, the world's biggest oil exporter and OPEC's kingpin,
to throttle back output to accommodate potential increases from Iraq. The wild
card is whether a six-month deal struck between Iran and Western nations to
limit its nuclear program could lead to a pact to end an oil embargo that has
reduced Tehran's output by 1 million barrels a day from early 2010 levels.
Saudi oil minister Ali al-Naimi says rising global demand could accommodate
more oil from Iran and Iraq. But the Saudis are expected to face calls to take
up the role of swing producer, curbing flows to keep prices in the group's
comfort zone.
The 1,000-day average of the basket price belies broad swings in the measure of
12 grades of OPEC crude, from a low of $66.84 in May 2010 to a peak of $124.64
in March 2012, when the Iran embargo was being considered.
Saudi output in the period averaged 9.4 million barrels a day, ranging from 8.2
million to 10.2 million, the highest level since the early 1980s. The desert
kingdom boosted supplies to replace lost flows in the aftermath of the Libyan
revolution and during labor unrest that has again curbed production. A 60
million barrel release of emergency oil stocks by major consumer countries, led
by the U.S., in June 2011 helped blunt the impact of lost supplies from Libya's
civil war.
OPEC overall lost ground to producers outside the group as global demand has
climbed by 6.2 million barrels a day since January 2010, according to the U.S.
Energy Information Administration. Oil supply from the U.S. and Canada has
grown by a combined 4 million barrels a day in the period. Growth in non-OPEC
supply is expected to top the rise in global demand next year, meaning OPEC
would need to pump less or risk a price drop.
Michael Wittner, an oil analyst at Societe Generale in New York, sees a
"greater than 50% chance" that Iran could reach a full deal to relax
sanctions within six months. Still it would take six to nine months for the
lost 1 million barrels a day in output to be restored. When the time comes, Mr.
Wittner says, he believes the Saudis "will have no hesitation" to cut
to offset rising Iranian output.
Barclays analysts see OPEC struggling to meet even lower demand for its oil in
2014 as problems persist in Libya, Nigeria and Iraq and as Iran's sanctions
remain in place for at least the next six months.
"A day of reckoning between oil supply growth and prices may still loom on
the horizon, but it is unlikely to be a 2014 event," according to
Barclays.
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