OPEC Demand Drop

Brian Hicks

Written By Brian Hicks

Posted June 17, 2013

In the clearest indicator yet of the shifting balances of international oil production, the Organization of Petroleum Exporting Countries (OPEC) will likely cut down on shipments of crude through June in response to ever-increasing U.S. production.

OPEC logoAccording to Oil Movements, a company that tracks oil tankers, OPEC will ship 23.88 million barrels per day through June 29. That’s down by about 0.3 percent from the 23.95 million barrels it ran through over the previous month. The report suggests exports may go back up next month.

Bloomberg reports:

“It should be going up by now, but it isn’t,” Roy Mason, the company’s founder, said today by telephone from Halifax, England. “Demand is being taken care of by domestic production, which is absorbing it, so the west is pretty dead. Any improvement is entirely in eastern shipments.”

Meanwhile, domestic U.S. production of crude was up to 7.3 million barrels per day through May, making it the highest since 1992. One consequence of the rising volumes of crude production has been that the U.S. has reduced its imports of crude from certain OPEC members (Nigeria, Algeria), though imports from Saudi Arabia remain level. Overall, shipments from the Middle East are set to decrease to 17.56 million barrels per day—a drop of 0.7 percent, says Oil Movements.

Meanwhile, crude that’s on tankers is also set to drop by 0.3 percent—from 469.92 million barrels to 468.37 million barrels.

Slowing OPEC Production

Even the International Energy Agency concurs with this assessment of OPEC’s production, stating that slower than expected growth in China will mean downward revisions for demand from that nation. Thus, over the second half of this year, OPEC will likely need to provide about 29.8 million barrels per day. That’s a reduction of some 200,000 barrels, meaning OPEC would have to reduce total output by 1.1 million barrels from May’s 30.9 million barrels figure. However, IEA held level its estimate for worldwide oil demand over the year, reports Bloomberg.

Thus far in the year, Brent crude is down 8 percent, due in large part to the continued economic travails of the Eurozone and slowing Chinese demand. Overall, though, the IEA expects worldwide oil demand to increase by 785,000 barrels per day (a rate of 0.9 percent). Chinese demand, specifically, is expected to be less by 15,000 from anticipated levels of 9.96 million barrels.

As far as OPEC is concerned, production was up by 135,000 barrels per day to a total of 30.9 million a day through May. The increase was driven mainly by production surges from Saudi Arabia, Iran, and the UAE, though production fell in Iraq, Libya, and Nigeria.

North American Oil Production

The story beyond OPEC is a lot more interesting, though. The IEA expects non-OPEC production—spearheaded mainly by Canada and the U.S.—to increase by 1.1 million barrels per day. Total production should top out at 54.5 million barrels per day.

As if to lend further credibility to that claim, the Bakken Shale in North Dakota hit a new record production level of 727,419 barrels per day in April. Major players in that all-star shale were Continental Resources, Inc. (NYSE: CLR) and Whiting Petroleum Corp. (NYSE: WLL). Between the two, production rose 1.2 percent over March levels, and output was up 33 percent from April 2012, reports Bloomberg.

Indeed, both the Bakken and the Eagle Ford Shales saw boosts in output volumes, meaning domestic production hit as high as 7.37 million barrels a day during the week ending May 3, the highest level seen since early 1992. As of last Thursday, spot Bakken was down to $2.75 a barrel over the West Texas Intermediate.

Through April, 75 percent of Bakken crude was transported out of North Dakota via trains, while 17 percent left via pipeline. The train volume is higher than March’s figure—71 percent—while pipeline transport volumes appear to have decreased—March indicated 20 percent. Do note, however, that pipeline developers have begun numerous projects across several shale hot-zones, meaning the domestic pipeline network is quite likely to see some serious expansion within the near future.

Overall, the state of North Dakota was responsible for 793,249 barrels per day through the month (that’s already an increase of 1.3 percent over March’s production). 119 wells were drilled through April, and there are 184 operational rigs.


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