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The End for OPEC Crude

Energy and Capital's Weekend Edition

Written by Brianna Panzica
Posted November 3, 2012

Oil importing nations rely on OPEC...

Which is why this group of twelve countries is referred to as the Organization of the Petroleum Exporting Countries.

They rely on the fact that OPEC production is strong — even when some members falter in production — and they rely on the fact that OPEC can produce more oil for exports than any other group of nations.

What they haven't considered is that OPEC production will peak.

And that day is fast approaching.

OPEC total oil production has seen a net increase over the past decade...

In 2002 OPEC nations were producing 28.97 million barrels per day. By this year, that's expected to have risen to 36.64 million bpd. That's a jump of more than one million bpd from last year — and the same increase seen every year since 2009.

But the projections for the future are not quite so optimistic.

By next year, OPEC production will remain relatively stagnant with an average production of 36.83 million bpd.

As a matter of fact, production from the region is already showing signs of weakening...

Its monthly production this year climbed through April, but began to fall in May and June — all the while remaining above 36 million bpd.

The last several months have seen a rapid drop.

A Dow Jones Newswires survey released this week reveals OPEC production was down in October to 31.32 million bpd, according to industry insiders. That's a fall of 350,000 barrels from September, a number the same analysis put at 31.669 million bpd — down nearly five million from June.

The survey attributes the drop to a fall in production from Nigeria and Iran.

Iran's decline was, of course, due to the oil sanctions imposed in response to the nation's covert nuclear program. Nigeria, meanwhile, had flooding in the Niger Delta and a wave of attacks on oil pipelines.

And that's the problem with OPEC...

The majority of the nations are located in the Middle East and Africa — areas plagued with war and civil unrest. If dwindling resources don't cause peak production, unrest surely will.

The EIA expects OPEC surplus crude oil capacity to drop significantly this year.

It will pick back up next year, but still be lower than 2011 levels and well below 2002's highs:OPEC Surplus Crude Oil CapacityMeanwhile, non-OPEC production is picking up... and the nation seeing the fastest growth is none other than the United States.

That's right — the United States' crude oil and liquid fuels production is growing faster than any non-OPEC nation, faster than Canada, and faster even than major European supplier Russia:Non-OPEC Production GrowthOf course, it's the domestic shale production that is helping speed up this growth, as well as significant offshore auctions in the Gulf of Mexico.

But the real boom is from technological developments: Enhanced oil recovery (EOR) techniques, horizontal drilling, and different methods to make this horizontal drilling even more profitable are allowing drillers to produce oil that's essentially been stuck in reserves for years.

And the companies taking advantage of these techniques will be the ones to push production even further.

We know plenty of OPEC members aren't all that fond of us, and yet we continue the relationship.

However, as our own production picks up, we get one step closer to kicking OPEC to the curb. And while we might not be able to stop imports completely, we can certainly get along without the sour relationship...

Good Investing,

Brianna Panzica
for Energy and Capital

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