Supply risks threaten runaway global oil output picture With oil production in North America on a seemingly unstoppable upward trend, it is not uncommon these days to hear how the world might be able to relax a little in the knowledge that its oil demand is more or less guaranteed to be met in the short to medium term. But there is no room for complacency, with the International Energy Agency warning on Friday that supply continues to be disrupted across the world, both within OPEC member countries and elsewhere. OPEC output slipped further in July, with the IEA estimating supplies at around 30.4 million b/d. You can read our analysis of the group’s July output here. Not even OPEC kingpin Saudi Arabia could prevent production from sliding despite its output hitting a 12-month high of 9.8 million b/d, according to IEA estimates (though a Gulf source on Friday put the number at 10.03 million b/d for wellhead and 9.9 million b/d for supply). North American output also rose in July, with Canada leading the push that saw non-OPEC supplies jump to almost 55 million b/d. You would think that with all this extra oil the market would show no signs of tightness and prices could fall — but it is the risk premium in some of the less stable parts of the world keeping oil at above $100/b. So what is the problem? For a start, disruption continues in three key OPEC producing countries, namely Libya, Iraq and Nigeria. “OPEC’s main challenge seems to be less future demand softness than practical difficulties in bringing production to market,” the IEA said in its latest monthly report. “OPEC output last month was down for reasons that had very little to do with lack of demand or competition from North American supply, and everything to do with domestic developments in some member countries.” In Libya, civil unrest cut exports to their lowest since the 2011 civil war. In the new, post-Qadhafi Libya, jobless people were promised work in the oil sector, the mainstay of the country’s economy. But as time progressed, new jobs were not being created and people were still unemployed. Add to that the fact that workers at oil facilities across the country — and critically security personnel paid to guard the oil fields, refineries and terminals — are unhappy with their pay and conditions, and it seems that no one in Libya is content with their post-Qadhafi lot. The result? Production and exports have been severely curtailed, hitting Libya’s economy where it really hurts. Pleas from oil minister Abdel Bari al-Arousi for a halt to the protests — he talked of how all Libyans were brothers and this action was hurting everyone — have fallen on deaf ears. In Iraq, meanwhile, pipeline attacks saw output fall below 3 million b/d for the first time in six months, and planned infrastructure work in September may slash exports by 300-500,000 b/d for months. Security issues also cloud supply prospects in Nigeria and to a lesser extent Algeria. The problem also is that supply risk in the Middle East and North Africa is not confined to OPEC member states. In Egypt, a standoff between supporters and opponents of deposed President Mohamed Morsi shows no sign of abating while the civil war continues to rage in Syria. And in Yemen security forces earlier this week said they had foiled an attack on the country’s oil fields and infrastructure. As the IEA puts it: these developments will likely go a long way towards explaining a run-up in oil prices which saw US benchmark WTI hit 16-month highs in July. Lee D. Vendig, II President LDV Oil & Gas Consultants Inc. 4925 Greenville Avenue, Suite 200 Dallas, TX 75206 Main: 214.361.0104 Cell: 214.683.8702 Fax: 214.800.2605 ldvconsulting Linkedin linkedin/in/ldvii/ Follow me on Twitter @vendigoil23
Posted on: Sun, 11 Aug 2013 11:57:29 +0000
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