OPEC's tiffs patched-up! Its all crudely good!

An announcement is expected on OPEC quota much earlier than expected at 14:00CET instead of 16:00CET. Instead of the rows we saw last time, things on this instance were so amicable that they've wrapped up early. Saudi minister Ali Al-Naimi has left the building having patched-up with his Iranian counterpart, a trusty Venezuelan has just confirmed that a 30 million bpd OPEC quota agreement is a done deal and the Oilholic has just done a comment piece on an OPEC TV webcast.

Rostam Ghasemi, Minister of Petroleum of Iran and current President of the OPEC Conference noted that the last meeting on June 8th, the international oil market has witnessed further volatility. The OPEC Reference Basket price has risen to US$113 a barrel on several occasions, and it fell below US$99 a barrel briefly at the start of October as well.

“Uncertainty about economic growth translates into uncertainty about oil demand. In the aforesaid five-month period, we have reduced our forecast for world oil demand growth in 2012 by around 600,000 barrels a day. This leaves us with a demand growth estimate for 2012 of 1.1 million barrels per day over 2011,” Ghasemi said.

“Therefore, when reviewing the market outlook for 2012 and beyond, we face a very unclear picture. On the one hand, we are committed to ensuring that the world oil market is always well-supplied. Yet, on the other hand, we are faced with the prospect of a world economy which could swing either way in the coming months. It could enter a welcome period of sustainable economic recovery or return to a new downturn or even recession,” he added.

A relatively small impulse in an economy, or a group of economies, could be a deciding factor in this unstable global environment. The situation is not helped by the still considerable influence of the international financial sector in over-stating market trends in one direction or another, out of line with fundamental factors,” Ghasemi continued.

All this, according to Ghasemi presents a huge challenge to OPEC's Member Countries, when it comes to investing in future production capacity in an industry with high capital-outlays and long lead-times. More shortly, after the official confirmation of the OPEC quota!

© Gaurav Sharma 2011. Photo: OPEC HQ, Vienna, Austria © Gaurav Sharma 2011.

On OPEC chatter & Libyans who matter!

Credible information and several statements made on arrival in Vienna by OPEC ministers and member nations’ delegates suggest that price hawks – chiefly Iran – will now accept an 'official' rise in production quota by Saudi Arabia and its allies Kuwait and Qatar.

That would mean the cartel would now legitimise and accept a stated production cap of 30 million barrels per day (bpd) for all members after talks on the issue fell apart in June and OPEC ministers left in a huff without formally outlining the output cap.

Saudi Oil Minister Ali al-Naimi has already been flexing his ‘crude’ muscles. If, as expected, an OPEC agreement puts a 30 million bpd production cap on all 12 OPEC member nations, this would keep the cartel’s production in the region of a 3-year high. The stated volume would meet demand and leave enough surpluses to rebuild lean stocks by 650,000 bpd over the period according to OPEC.

Sucden Financial Research’s Jack Pollard notes that an OPEC production ceiling could provide some upside support if approved; Saudi opposition could suppress calls from Iran. The return of Libyan and Iraqi crude oil should alleviate the market’s tight supply conditions.

“As we come to the year-end, the contrasting tail risks in Europe and the Middle-East seem most likely to dominate sentiment. Increased sanctions on Iran which could cut production by 25%, according to the IEA, could mitigate the worst of the losses if the situation in Europe deteriorates,” he concludes.

Assurances are also being sought here to make room for Libya's supply coming back onstream so that collective production does not exceed 30 million bpd as ministerial delegations from Algeria, Kuwait, Nigeria and the OPEC secretariat met here today, ahead of tomorrow’s proceedings.

Most OPEC producers would be comfortable with an oil price of US$80 per barrel or above, while the Venezuelan and Iranian position of coveting a US$100-plus price is well known. Kuwait Oil Minister Mohammad al-Busairi told reporters, “The market is balanced, there is no shortage and there is no oversupply. We hope there will be an agreement that protects global economic growth.”

As talk of Libyan production coming back onstream gains steam here at OPEC, the Oilholic thinks the key figures on the Libyan side instrumental in bringing that about could or rather would be Abdel Rahim al-Keib (a key politician), Rafik al-Nayed (of Libya’s investment authority) and Abdurahman Benyezza (Minister of Oil and Gas). International companies BP, Eni, Occidental Petroleum, OMV and Repsol will figure too with operations in the country. That’s all for the moment folks! Keep reading, keep it ‘crude’!

© Gaurav Sharma 2011. Photo: 160th OPEC press conference table © Gaurav Sharma 2011.

IEA, crude price & Al-Naimi’s strong arm tactics!

The Oilholic arrived in Vienna this morning ahead of the 160th OPEC meeting from sunny Doha via a gale force wind hit London, to hear that the IEA had a new message for the cartel. The agency's latest market report notes that OPEC will need to produce “less” crude over 2012 than previously forecast. Global demand will average 90.3 million barrels per day (bpd) over 2012, which is 200,000 barrels less than the IEA’s November estimate.

This marks the fourth cut in the IEA’s 2012 forecast. Meanwhile, before the OPEC meeting outcome is officially known, the ICE Brent forward month future contract came in at US$109.41 up 2.15 cents or 2% while WTI came in at US$100.00 up 1.17 cents or 1.1 per cent when the Oilholic last checked at 19:00CET. Concurrently, the OPEC basket of crudes price stood at US$107.33 on Monday.

Meanwhile, Saudi oil minister Ali al-Naimi arrived in Vienna with more than the customary aplomb declaring to the World’s press that his country’s output had topped 10 million bpd, the highest it has been in recent memory. If his idea was to get price hawks Algeria, Iran and Venezuela to acknowledge an appreciable rise in Saudi supply, since the shenanigans of the last meeting of the cartel in June, then sources suggest it just might have succeeded.

The geopolitical pretext of course is that the Saudis wanted to make up for lost Libyan supplies.

© Gaurav Sharma 2011. Photo: OPEC crest © Gaurav Sharma 2011.

We’re nowhere near “Peak oil” er...perhaps!

The 20th World Petroleum Congress could not have possibly gone without a discussion on the Peak Oil hypothesis. In fact, every single day of the Congress saw the topic being discussed in some way, shape or form. So the Oilholic decided to summarise it after the event had ended and before the latest OPEC meeting begins.

Discussing the supply side, starting with the hosts Qatar, Emir Sheikh Hamad bin Khalifa said his country was rising to challenge to secure supplies of oil and gas alongside co-operating with members of the energy organisations to which they were aparty, in order to realise this goal. Close on the Qatari Emir’s heels, Kuwaiti oil minister Mohammed Al-Busairi said his country’s crude production capacity is only expected increase between now and 2015 from the current level of 3 million barrels per day (bpd) to 3.5 million bpd, before rising further to 4 million bpd.

Then came the daddy of all statements from Saudi Aramco chief executive Khalid al-Falih. The top man at the world’s largest oil company by proven reserves of barrel of oil equivalent noted that, “rather than the supply scarcity which many predicted, we have adequate oil and gas supplies, due in large part to the contributions of unconventional resources.”

Rising supplies in al-Falih’s opinion will result in deflating the Peak Oil hypothesis. “In fact, we are on the cusp of what I believe will be a new renaissance for petroleum. This belief emanates from new sweeping realities that are reshaping the world of energy, especially petroleum,” he told WPC delegates.

Meanwhile, in context of the wider debate, Petrobras chief executive Jose Sergio Gabrielli, who knows a thing or two about unconventional told delegates that the speed with which the new sources of oil are entering into production has taken many people by surprise, adding to some of the short-term volatility.

“The productivity of our pre-salt offshore drilling moves is exceeding expectations,” he added. Petrobras now hopes to double its oil production by 2020 to over 6.42 billion barrels of oil equivalent. It seems a veritable who’s-who of the oil and gas business lined up in Doha to implicitly or explicitly suggest that Marion King Hubbert – the patron saint of the Peak Oil hypothesis believers – had always failed to take into account technological advancement in terms of crude prospection and recent developments have proven that to be the case.

But for all that was said and done, there is one inimitable chap who cannot possibly be outdone –Total CEO Christophe de Margerie. When asked if Peak Oil was imminent, de Margerie declared, “There will be sufficient oil and gas and energy as a whole to cover the demand. That’s all! Even using pessimistic assumptions, I cannot see how energy demand will grow less than 25% in twenty years time. Today we have roughly the oil equivalent of 260 million bpd (in total energy production), and our expectation for 2030 is 325 million bpd.”

He forecasts that fossil fuels will continue to make up 76% of the energy supply by 2050. “We have plenty of resources, the problem is how to extract the resources in an acceptable manner, being accepted by people, because today a lot of things are not acceptable,” the Total CEO quipped almost to the point of getting all worked up.

He concluded by saying that if unconventional sources of oil, including heavy oil and oil shale, are exploited, there will be sufficient oil to meet today’s consumption for up to 100 years, and for gas the rough estimate is 135 years. Or enough to make Hubbert stir in his grave.

© Gaurav Sharma 2011. Photo: Total's CEO De Margerie discusses Peak Oil at the 20th World Petroleum Congress © Gaurav Sharma 2011.

Sunset in Doha: Off from WPC to OPEC!

The 20th WPC ended yesterday in Doha and it was an amazing experience. Following the opening ceremony on Dec 4th, it was another four days of intense debates, discussions, meeting and greeting and the Oilholic has been wiser for it.

Everything from peak oil to unconventional projects was under the microscope, a deal announced here and CEO speaking there, one minister throwing-up a policy initiative to another presenting a white paper and so it went. Every oil major – NOC or IOC – offered up some newsy or debatable material and the Oilholic put them across from his perspective without attempting to be everywhere at all times and being all things to all ‘crude’ men as it was near impossible.

This blogger was also truly delighted to have moderated a Baker & McKenzie event at 20th WPC which included a seminar on NOCs, where they should invest, what they should know and where the opportunities lie. Over the course of five days, several representatives from a list of companies and firms too long to list engaged in constructive discussions – some on and some off record. Furthermore, delegates from Milwaukee to the Faroe Islands got to hear about this blog and offer their insight and suggestions which are deeply appreciated.

The Qataris aside, officials from Angola, Algeria, Brazil, Canada, China, India, Kuwait, Nigeria, Netherlands, Norway, USA, Russia, Venezuela and last but not the least the UK spared their invaluable time to discuss crude matters with the Oilholic, however briefly in some cases. One oil minister even joked that if he had time – he’d be a blogger himself!

All good things come to an end and now its time to say goodbye to Doha and head back to London, albeit briefly before the 160th meeting of OPEC ministers at the cartel’s HQ in Vienna on December 14th. There were fireworks last time between the Saudis and Iranians at OPEC HQ; let’s see what happens this time.

Ahead of the OPEC meeting, Secretary General, Abdalla Salem El-Badri took a timely swipe here in Doha at speculators.

On the penultimate day of the congress he told delegates, “Speculative activities remain an issue in the current market. This can be viewed in the respective sizes of the paper and physical markets. Since 2005, there has been a sharp increase in the number of open interest futures and options contracts. At times it has surpassed three million contracts per day, equivalent to 3 billion barrels per day. This is 35 times the size of actual world oil demand.”

El-Badri also noted that between 2009 and 2011, data has shown an almost one-to-one correlation between WTI prices and the speculative activity of the net long positions of money managers. “This is in terms of both volume and value. Let me stress, excessive speculation is detrimental to both producers and consumers and can cause prices to detach from fundamentals. It is essential to avoid distorting the essential price discovery function of the market,” he added.

Meanwhile ahead of the OPEC meeting, ratings agency Moody's has raised its 2012 and 2013 price assumptions for both WTI and Brent benchmarks. It now assumes a price of US$90 per barrel WTI crude in 2012, and US$85 per barrel in 2013, dropping to US$80 per barrel in the medium term, which falls beyond 2013. The ratings agency had previously assumed a price of US$80 per barrel for WTI in 2012 and beyond.

On Brent crude, Moody's assumes a price of US$95 in 2012, US$90 in 2013 and US$80 in the medium term - higher than the previous assumption of US$90 in 2012 and US$80 thereafter. Moody's continues to use US$60 per barrel as a stress case price for both WTI and Brent.

The move reflects the rating agency's expectations that oil prices will remain robust over the next two years, while natural gas will remain significantly oversupplied. Price assumptions represent baseline approximations – not forecasts – that Moody's uses to evaluate risk when analysing credit conditions within the oil and gas industry. And on that note, its goodbye from Doha; keep reading, keep it ‘crude’!

© Gaurav Sharma 2011. Photo: Outside the QNCC at the 20th Petroleum Congress, Doha © Gaurav Sharma 2011.