Baku, Azerbaijan, August 24
By Aygun Badalova - Trend:
There can never really be a coordinated OPEC/non-OPEC supply cut as we saw in previous decades, because in 2015 two of the biggest growth areas, Canada and the US, don't have anyone to call, head of analysis at Lloyd's List Intelligence Neil Atkinson exclusively told Trend.
He said that oil prices are clearly very weak now and he believes that at the moment they can only get weaker.
"In the past five years (up to end 2014) global oil demand has grown by 7 million barrels a day but in contrast to earlier periods production capacity has grown incredibly. The US is the most obvious performer with crude production growing from 5.0 to 9.6 million barrels a day in six years; in the same period Canada growing from 3.2 million barrels a day to 4.3 million barrels a day. Total non-OPEC production has grown net by 7 million barrels a day, almost matching the growth in demand," Atkinson said.
"Within OPEC Iraq's capacity number is up by 1 million barrels a day and Saudi Arabia's capacity is up by about 2.0 million barrels a day. Iran and Libya have shut-in capacity of about 1 million barrels a day each," he added.
Atkinson mentioned that the last time prices collapsed sharply in 2008 and into 2009 OPEC produced a traditional response straight out of the 1980s and 1990s playbook by cutting production. And this did the job of rescuing prices.
"But it was relatively easy because there was no fast-growing non-OPEC producer to benefit from higher prices and nip in to take any forfeited market share," Atkinson said.
"Fast forward to 2015 and we have now learned that the US producers can cope with far lower prices than we thought by a combination of technical cost-cutting, re-financing and of course that oft-overlooked factor, hedging. If prices fall much further though we may finally see a marked downturn in US shale production as even the ingenuity of the shale guys might be challenged," the analyst said adding that in that case any falls in would only scratch the surface of the global supply glut.
On Friday, Brent crude, the global oil benchmark, fell by 1,16 percent to $45,46 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, WTI futures decreased by 0.87 percent to $40.45 a barrel.
Currently, OPEC's quota for oil production is 30 million barrels per day. However, the member states do not comply with this quota. OPEC crude production fell in July by 15,000 barrels a day to 31.79 million barrels a day, according to International Energy Agency. Nevertheless, its production held steady near a three-year high.
Iran's Oil Minister, Bijan Zanganeh, said on Sunday that holding an emergency OPEC meeting may be "effective" in stabilizing the oil price, Reuters reported.
"Iran endorses an emergency OPEC meeting and would not disagree with it," Zanganeh told reporters in Tehran.
According to some OPEC delegates, a meeting is unlikely unless Saudi Arabia is in favor. The country is the world's major oil exporter and prefers to keep its market share rather than cut output to support prices.
Meanwhile, Atkinson believes that a persistent and barely diminishing surplus of supply over demand can only realistically be cleared by the Middle Eastern producers withdrawing at least 1.0 million barrels a day and arguably much more from the market.
"Nobody knows how far prices would rise as there is no magic formula. But if the US has a become a de facto swing producer, we mustn't forget that you can swing both ways and any significant sign of higher prices will encourage the shale guys back in, thus resuming the downward pressure on prices, so the sequence starts again," Atkinson said.
"And of course, even if Saudi Arabia, UAE, Kuwait and Qatar could by some miracle agree to act, Iraq would play the post-2003 guilt card and claim a free pass and meanwhile Iran will be gearing up for a market return. And let's not get started on the consequences of peace in Libya," he added.
"Maybe the only realistic option is foe the Saudis to wheel out their time-honoured formula by saying something like: 'Saudi Arabia always responds to the needs of our customers and recently, in response to high stock levels and a heavy refinery maintenance schedule, they are telling us that their crude purchase requirements are lower. In view of this, plus the end of the summer air-conditioning season in Saudi Arabia, we are reducing production for the time being. Of course, when customers return for more crude then we will be happy to supply their needs'," Atkinson said.
"No need to specify a figure. The market will work that out for itself. Such a statement, matched by similar sentiments from the other Gulfies, could stabilise the market. For now," he added.