Executive summary

OPEC is currently pumping at close to near term and historic highs of 31.2 mmbpd of crude oil. Outside of Saudi Arabia, the majority of spare capacity is deemed to lie in Iran and Nigeria. Iran could certainly pump more if permitted to do so by the international community. It is doubtful that Nigeria could. The UAE Kuwait, Qatar, Libya, Algeria and Venezuela are all pumping at close to capacity levels. Saudi Arabia alone has meaningful spare capacity of 2.1 mmbpd.

Embedded in the production stack (Figure 1) is an intriguing tale of general strike, international conflict, civil war and sanctions combined with masterly control of oil supply that has kept global markets in balance.

Figure 1 Monthly crude oil production for 12 OPEC countries. All data published in this interim report are taken from the monthly IEA Oil Market Reports.

From May 2007 to August 2010, Rembrandt Koppelaar published an e-report called Oil Watch Monthly that summarised global and national oil production and consumption data from the International Energy Agency (IEA) of the OECD and Energy Information Agency (EIA) of the USA. This is the second in a series of new Oil Watch reports, co-authored with Rembrandt and details crude oil production data for 12 OPEC countries (includes Angola and Ecuador, excludes Indonesia) as reported by the International Energy Agency. Earlier editions:

Oil Watch - World Total Liquids Production

There is a growing impression being given in the discussion of oil and natural gas supplies that the world is moving into a period where there will soon be such a plentiful sufficiency of crude that the US may consider exporting some of its production (h/t Leanan). But if one looks behind the headlines, and particularly at the current status of the largest oilfield contributing toward this rosy picture - the Ghawar field in Saudi Arabia - that optimism becomes more evidently built on a very transient set of data that, as this series of posts seeks to show, will not be sustainable for any significant period into the future.

The three major oil producers (i.e. those producing more than 5 mbd each) are currently seeing surges in production as the world moves to an overall production of 90 mbd. The OPEC June Monthly Oil Market Report (MOMR) notes that this has brought Russia to 10.33 mbd in May, some 100 kbd over the same period in 2011; and Saudi Arabia is reported to have averaged 9.917 mbd in May, up 40 kbd over April. The United States is running at 6.236 Mbd of crude (from the EIA TWIP), while importing 9.117 mbd. The MOMR reports US oil supply at 9.66 mbd on average, but counts more than just crude in this value. The gain over the past year is around 600 kbd. It is interesting to note, in regard to OPEC production the continued difference between the volumes that OPEC reports from direct contact with the suppliers, and that when the numbers are obtained from “secondary sources.”

This is a guest post by Derik Andreoli, Senior Analyst Mercator International, LLC

Upon exiting the most recent Opec summit, the visibly frustrated Saudi Oil Minister, Mr. Ali Naimi, proclaimed it to be “one of the worst meetings we have ever had.” In the lead up to the meeting, oil traders had come to believe that Opec would increase production quotas to cover the shortfall of light, sweet Libyan crude going into Europe’s peak demand season. This led traders to the conclusion that tight markets would loosen (relatively), and as a consequence, oil traders bid down the price for ‘paper barrels’ (oil futures) by a couple of dollars.

While hindsight may be 20/20, foresight is rarely better than 50/50, and in this case, the market was wrong. Opec failed to revise production quotas, and upon learning of this decision, traders quickly bid the price back up. A couple days later, Saudi Arabia announced that they would break with Opec by lifting production above their allotted quota. Oil traders reacted by bidding the price back down, and in the end, prices had settled back to previous levels as if the summit had never happened. But the story isn’t over until all the holes in the plot have been filled, and all the nagging questions answered.

With the turmoil in the Middle East and North African countries (MENA) now more evident in nature, the impacts on global oil production can be more rationally assessed. In this vein, the OPEC Monthly Oil Market Report (MOMR) for June has now been released. The main feature article looks at the prospects for the rest of the year, and as Leanan caught in Drumbeat, one of the major concerns has to be that OPEC supply, at current levels (28.97 mbd), does not reach the anticipated average demand for the year (29.9 mbd). However, putting that in context, MOMR begins by noting that the price of the OPEC basket fell $8.15 in May, to $110/bbl, so there are mixed signals in the air. Further, OPEC currently reports that they collectively supplied an average of 29.6 mbd in 2010, so that the increase in supply needed over last year is only 0.3 mbd.

As I mentioned earlier in the week, the disputes within OPEC have so far left the organization unwilling to sanction the increases needed to meet the anticipated imbalance. Whether this is a ploy by Saudi Arabia (KSA) to appear “friendly” to the customer, while bowing to majority rule and keeping supply tight enough to force prices higher, or whether the KSA will unilaterally release more oil is currently in question. The level of increase that KSA has suggested, 1.5 mbd, may appear to be larger than that needed to bring supply and demand into balance. Demand is seasonal, however, and is expected to maximize in the third quarter, during which global demand is expected to rise some 2.3 mbd, with growth continuing with a further addition of 0.2 mbd in the fourth quarter. Thus, in that context, it is interesting to see how the MOMR reflects the current organizational view of the next six months.