It is projected that Saudi Arabia, Kuwait, Qatar, and UAE would have to reduce their production by 1mmbd to prevent an oil glut and keep prices stable above the $100 a barrel level, the latest NCB monthly review on Saudi economic and financial developments said.
In its Monthly Oil Market Report, OPEC projected demand for its crude to contract by 0.31mmbd to 29.6mmbd in 2014 from estimated 29.9mmbd in 2013. While the geopolitical tension is easing along with improving fundamentals, it is expected that growth in emerging economies, especially led by China, will lessen the decline in demand for
OPEC’s crude, which has been affected by the boom in shale oil production in North America according to an article in The Saudi Gazette.
On the demand side, the IEA estimated that global demand will increase by 1.2mmbd, or 1.3 percent, to 92.4mmbd next year, following data showing US consumption rising to its strongest level in five years. The US fuel use rose above 20mmbd for the first time since 2008. OPEC predicts that demand for its oil in the first quarter of 2014 will shrink by 1.2mmbd against 4Q13.
On the supply side, OPEC’s output fell to a two year low of 30.0mmbd in November. The IEA forecast that output from outside OPEC to expand by 1.8mmbd next year, exceeding global demand growth of 1.2mmbd.
Meanwhile, the 12-nation group, accounting for 40 percent of global supply, decided in the 4th December’s meeting to keep its production target at 30mmbd, which is 1.4mmbd above the expected demand of the group’s crude in 1Q14, according to IEA.
Saudi Arabia, OPEC’s largest oil exporter, produced 9.65mmbd in November.
Iran’s production averaged 2.6mmbd last month compared with 3.6mmbd at the end of 2011, but it aims to boost its oil production to 4mmbd in 2014 if sanctions are lifted. In return for restraining its sensitive nuclear activities, the interim agreement reached recently with the Western countries pledges to ease a limited number of sanctions on Iran, which include penalties on trade with Iran on gold, petrochemicals, and a European Union ban on insuring Iran’s oil shipments. Iraq, which overtook Iran to become the second-largest producer, expects to produce 4.1mmbd, nearly 1mmbd higher than its average output of 3.1mmbd in 2013. Libya currently produces only 0.25mb/d, but it intends to restore its production level of 1.5mmbd upon resolving its political issues.
Brent crude prices held steady above $108 a barrel since the start of the year, little changed from $111.7 a barrel in 2012, and $110.9 a barrel in 2011.
Recently, prices are drawing support from demand growth hopes at the US after industry data showed a fall in crude stockpiles. Expectations of a fall in US crude inventories are supporting the WTI, reaching $97 a barrel, while easing demand because of refinery shutdowns in France are weighing on Brent, narrowing the spread between the two, which is currently under $11 a barrel.
However, excess supply, attributed to US shale oil and a potential resurgence in exports from Iran, Iraq, and Libya may push prices lower in 2014 if productions cuts by other OPEC members are not made.
The price of oil edged closer to $100 a barrel Friday after the US government said the economy grew at a faster rate in the third quarter than originally estimated.
Benchmark US oil rose 28 cents to close at $99.32. For the week, oil rose about 3 percent, largely because of signs of improvement in the US economy. The last time oil closed above $100 a barrel was Oct. 18.
Brent crude, a benchmark used to price international crudes used by many US refiners, rose $1.48, or 1.3 percent, to close at $111.77.
In other energy futures trading, natural gas dropped 4 cents to $4.42 per 1,000 cubic feet (28.32 cubic meters).
