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Non-OPEC and OPEC crude balance

Hydrocarbon Engineering,

On 11 June, OPEC reaffirmed the group’s crude oil production target of 30 million bpd which has been in place since December 2011. The target is slightly above the 29.8 million bpd call on OPEC crude oil and global stocks during the year so far. For 2014 in total, the average call on OPEC and global stocks is expected to be 0.3 million bpd lower than 2013 levels with an additional 0.2 million bpd decline during 2015 to hit an average of 29.6 million bpd. Growing non-OPEC supply, particularly from contributing tight oil production growth in the US, drives the expected easing of global oil market conditions and contributes to the forecast of moderate crude oil price declines, the North Sea Brent crude oil process averaging US$ 108 /bbl in 2014 and US$ 102 /bbl in 2015, down from an average of US$ 109 /bbl last year.

The condition of the global oil market

Analysts use the call on OPEC crude oil and global stocks as a key indicator to assess the general condition of the global oil market. It is calculated as world consumption less non-OPEC supply and OPEC non-crude oil supply. An increase in the call means more crude oil supply from OPEC or a drawdown of stockpiles is expected to be needed to meet global demand.

The expected decline in the 2014 and 2015 call on OPEC crude and global stocks is part of a continuing trend in which strong growth in non-OPEC liquid fuels production has reduced the amount of OPEC crude needed to balance global supply and demand. The EIA has estimated that non-OPEC liquids production grew by 1.4 million bpd last year, averaging 54.1 million bpd for the year. The EIA expects non-OPEC liquids production to grow by 1.5 million bpd this year and by 1.2 million bpd next year, with production from tight oil formations in the US as the main driver. When it comes to non-OPEC supply, the EIA projects supply growth to be slightly lower than world demand growth in 2015, but a projected 0.3 million bpd increase in OPEC non-crude oil production, largely condensate, continues to reduce the call on OPEC crude and global stocks.

Unplanned disruptions

Despite the declining call on OPEC crude supplies to balance the market, recent experience has shown that events can intervene to tighten supplies and push prices higher unexpectedly. Unplanned global supply disruptions averaged 3.2 million bpd from January – May this year, up from 2.7 million bpd for the whole of last year. More than 1 million bpd of Libyan production has been offline since the third quarter of last year because of sporadic protests at some oilfields and blockades at major oil export terminals. Saudi Arabia has been the key to counterbalancing supply disruptions. Despite growing non-OPEC supply, Saudi Arabia has maintained crude oil production levels from 9.5 – 10 million bpd during the past year. Because almost all of OPEC’s surplus production capacity is in Saudi Arabia, higher levels of Saudi production have lowered levels of OPEC surplus production capacity. Surplus production capacity can act as a shock absorber for global markets, and increasing spare capacity is often considered to exert downward pressure on prices, all other market factors equal. EIA has estimated average OPEC spare production capacity at 2 million bpd during the first half of this year, up from the end of 2013, but down 0.4 million bpd from the first half of last year.

Over the remainder of this year and in to 2015, the EIA expects spare capacity to increase, averaging 2.4 million bpd during the second half of this year and 3.5 million bpd next year. This build in surplus capacity primarily reflects reduction in production to accommodate higher forecast supply levels from Iraq, Angola, and Libya, as well as some non-OPEC producers. These estimates do not include additional capacity that may be available in Iran but is currently offline because of the effects of US and EU sanctions on Iran’s oil sector.

Adapted for web by Claira Lloyd

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