Opec loses power as US shale boom keeps prices down

Oil traders should not lose too much sleep worrying about what Opec, often unpredictable and quarrelsome in the past, will do when it meets this week. The producer cartel, say delegates who attend meetings, is odds on to leave output policy unchanged. As a risk factor for oil markets, its May 31 gathering in Vienna barely features on traders’ radar.

One reason is that Brent oil prices are very close to top producer Saudi Arabia’s favoured $100 (R960) a barrel. While that is expensive by historical standards, it is well below the $125 price that sounded alarm bells last year. In fact, the shale oil and gas revolution in the US, still the biggest oil consumer ahead of China by a big margin, has raised hopes among importers that the relentless rise in fuel prices over the past decade may be at an end.

Annual nominal average world oil prices rose more than fourfold on average in the decade from 2002, from $25 a barrel to a record $111 a barrel in 2012. This year to date, on average, they are down, if only a little, and Brent was trading at just over $102 a barrel on Friday.

An International Energy Agency report released earlier this month forecast US shale oil supply will help meet most of the world’s new demand in the next five years, leaving little room for Opec to lift output without risking lower prices.

“Opec is in a hard situation,” said Chakib Khelil, Algeria’s oil minister from 1999 to 2010. “The demand for Opec oil is going down, while increasing demand is being met by others, not by Opec.”

North America’s supply growth would cause a decline in demand for Opec oil until the end of the decade and a build-up of its spare capacity, BP chief economist Christof Ruhl said. “Opec has its work cut out already.”

Only a year ago, the shale boom was dismissed by Opec as of little concern. Kuwaiti Oil Minister Hani Hussein said producers would “wait to see more research to get a better idea about the impact of shale oil” and his Venezuelan counterpart, Rafael Ramirez, said: “I’m not worried at all, they are only projections.”

By year end, the US had recorded the biggest annual increase in oil output since it first produced oil in the early 1860s. The 850 000 barrels a day increment was more than each of Opec’s two smallest producers, Qatar and Ecuador, produce in total.

Some shale oil is among the most expensive globally to produce, but Saudi Arabia – holder of most Opec spare capacity – shows no sign of opening the taps to cut prices and curtail that output by making it uneconomic. Far from it, last month Saudi Oil Minister Ali al-Naimi hailed the US energy renaissance as “good news”.

Shale’s impact is felt most by those in Opec who relied heavily on exports to the US. The rise in US supplies has squeezed Nigeria and Algeria, forcing them to cut prices and send more oil further afield.

Opec delegates say the 12-member group’s meeting will stick with an output target of 30 million barrels a day.

“The price is still reasonable, and not less than $100,” said a delegate from one of Opec’s Persian Gulf members. “So it looks very straightforward. Continue with the official production ceiling and make informal adjustments, if necessary.”

Short-term market management will continue to be guided by Saudi Arabia.

Saudi production has trimmed from a 30-year high reached in 2012 of 10 million barrels a day, pumping 9.3 million barrels a day in April. That put Opec production at 30.46 million barrels a day, right in line with its calculations for average demand for its crude in the second half of the year.

Opec used to give traders more to worry about. In the early 2000s it met as many as seven times a year compared with just twice now, often making surprise decisions as it tried to micro-manage oil markets.

But it may not be out of the headlines for long. Next year could see a drop in world demand for Opec oil which delegates said might argue for supply curbs.

An Opec source said: “If Opec were proactive, we’d start to look seriously at individual production allocations.”

It has been unable for several years to agree on separate output quotas but may need them if it is required to cut back heavily and share out reductions.

Fonte: iol.co.za