OPEC July output falls 200,000 bpd

Discussion in 'Wall St. News' started by JayS, Jul 25, 2006.

  1. JayS


    OPEC July output falls 200,000 bpd

    Mon Jul 24, 2006 12:44 PM GMT

    LONDON (Reuters) - OPEC oil output will fall by 200,000 barrels per day in July because of lower production from top world exporter Saudi Arabia and from Venezuela, consultant Petrologistics said on Monday.

    Conrad Gerber, head of the Geneva-based consultancy, estimated that the Organization of the Petroleum Exporting Countries is pumping 29.9 million bpd in July, down from a revised 30.1 million bpd in June.

    The estimate suggests supply from Saudi Arabia has yet to rebound after the kingdom cut output in April as refinery maintenance and rising inventories curbed demand. Most OPEC members were pumping near full tilt earlier this year to cool record-high prices.

    "Saudi Arabia is at 9 million bpd flat and possibly even less by the end of the month," Gerber told Reuters by telephone. "Venezuela is also down."

    According to Petrologistics, Saudi output is set to fall from 9.15 million bpd in June. Venezuelan output is forecast to slip about 250,000 bpd to 2.3 million bpd in July because of maintenance at synthetic crude plants, Gerber said.

    But an increase from Iraq and higher-than-expected supply in Iran are offsetting lower Saudi and Venezuelan output, according to Petrologistics.

    Iran, OPEC's second-largest producer, is expected to pump 4 million bpd in July, about the same as in June, as the country shifts unsold barrels of mainly heavy crude.

    "Iran seems to be getting rid of its oil in storage, so they are well up on previous months," Gerber said.

    In an estimate last month, Gerber put Iranian output during June at 3.8 million bpd.

    The Petrologistics estimate indicates output by the 10 OPEC members bound by formal supply limits, all except Iraq, remained below their 28 million bpd target.

    Buyers of Saudi oil have said they expect the kingdom to hold output near 9 million bpd through August as rival producers help meet higher seasonal demand during the third quarter.

    Iraq is expected to pump 2.3 million bpd in July, up from 2.16 million bpd in June, leaving supply from the quota-bound members at 27.6 million bpd, Gerber said.

    Iraq aims to boost exports by restarting oil flows this week through a pipeline to Turkey, Oil Minister Hussain al-Shahristani told Reuters on Sunday.

    The line was hit by a sabotage attack earlier this month, forcing Iraq to halt sales of Kirkuk crude from Turkey.
  2. Aaron


    Thanks, Jay.

    I see news in here that can cheer both the bulls and the bears. Bulls will be happy to see that Iran is working off its high inventories. Bears will be happy to see the Saudi supply cushion increasing and Iraq continuing to ramp up exports. The dip in supply from Venezuela sounds like it is temporary, but the boost in supply from Iran also sounds temporary.

    What's your take on the situation?
  3. Aaron


    Here's some more news for the bears...

    API's 2006 Mid-Year Review- U.S. Refined Product Demand Down

    July 25, 2006 12:00:AM ET
    By STAFF

    Washington, DC - According to the American Petroleum Institute's Monthly Statistical Report for June, record high crude oil prices led to lower U.S. refined product demand in the first half of 2006, although the U.S. imported more gasoline than ever before.
    "Once again we have seen sharp increases in the price of gasoline and diesel fuel.(((160))) And, once again, it is due to the fundamental forces of supply and demand, tight world markets for crude oil and high prices, a higher cost of refining and distributing gasoline, a switch to ethanol blends, and sulfur content changes in diesel fuel," said API Chief Economist John Felmy.
    U.S. gasoline demand, as measured by API as deliveries out of the primary distribution system of refineries, bulk terminals and pipelines, declined in the second quarter by 0.4 percent, contrasting with a 0.5 percent increase in the first quarter of the year.
    "Our figures show that consumers, facing higher gasoline prices, apparently found ways to drive less and to use fuel more efficiently," said Ronald J. Planting, manager, statistical information and analysis, for API.
    Overall, U.S. refined product demand slumped 1.3 percent in the first six months of 2006 as deliveries for most products were flat to lower than year-ago levels. The exception was for on-highway diesel fuel amid an economic growth-led increase in the volume of goods transported by truck to consumers.
    In June, U.S. refiners began producing substantial quantities of Ultra Low Sulfur Diesel (ULSD), a new cleaner-burning fuel mandated by the Environmental Protection Agency. By the end of the month, refiners were producing more than 2 million barrels per day of ULSD.
    Gasoline imports soared to a record 1.26 million barrels per day, 18.8 percent above the first half of 2005, as foreign supplies were needed to offset the lingering hurricane impact on domestic refineries, many of which underwent necessary maintenance that had been delayed in the aftermath of last autumn's storms. Total refined product imports in the first six months of the year were more than 12 percent above year-ago levels to average 3.52 million b/d.
    The major hurricanes that slammed the Gulf Coast in late August and September continued to have lingering effects on domestic crude oil production though refineries affected by the storms had resumed normal operations by the end of June. For the first time in a year, refinery inputs, an overall measure of plant activity, rose above 16 million barrels per day in June to stand at 16.3 million barrels per day, the fifth highest monthly average level ever recorded. Gasoline production reached a record of nearly 9.2 million barrels per day in June.
  4. Aaron


    Inventory report comes out tomorrow (Wednesday)...

    EIA Inventory Report Expected to Show Mixed Result for Crude and Products

    July 25, 2006 12:00:AM ET
    By John Troland

    Houston, TX - A survey of market analysts suggests that when the Energy Information Administration, the statistical arm of the Department of Energy, releases its inventory report for the week ended July 21 on Wednesday morning, crude oil is expected to build by a solid 2.6 million barrels per day. Crude imports are expected at or near 11.6 million bpd while crude runs should fall slightly from the previous week's nearly 93% rate.
    A few sources suggested that expectations for lower crude runs are based on a few refinery snags, with the most significant being the full closure of Conoco/Phillips 305,000 bpd refinery in Wood River, Ill. on July 19.
    Gasoline stocks are expected to fall by slightly less than 1.0 million bpd, mostly on reduced production from the Wood River Refinery and steady demand that should come in at about the 9.5 million bpd level. Distillate fuels are seen building by about 1.2 million bpd as any loss in production from Wood River will be off-set by continued imports that are likely to remain near the 350,000 bpd level while demand is projected to come in a little lower than the previous week's estimate of nearly 4.2 million bpd.
  5. Aaron


    Here's someone else's commentary on Jay's article. Tom Waterman sees the article as mostly bearish...

    Is Saudi Arabia Acting as the “Swing Producer” Again?

    July 24, 2006 12:00:AM ET
    By Tom Waterman

    New York, NY - OPEC's July crude oil output is expected to fall by 200,000 barrels a day according to statements made today in Geneva by Petrologistics. The company is a highly respected tanker tracker and charts supplies moving around the world each month.
    Lower production from Saudi Arabia and Venezuela are cited as the main reasons for the decline. Overall, OPEC is expected to pump 29.9 million b/d in July, down from 30.1 million b/d in June.
    It is widely believed that output from OPEC's largest producer, Saudi Arabia, has fallen to 9 million b/d this month from 9.15 in June.
    "Saudi Arabia is being very careful about the number of barrels it pushes out, as there isn't the demand for the heavier grades it produces," Conrad Gerber, president of Petrologistics told Dow Jones. Venezuela's output is expected to fall by 250,000 b/d to around 2.3 million b/d in July because of oil maintenance work, Gerber said.
    Perhaps due to circumstances, Saudi Arabia may be acting as the swing producer, a role it does not embrace. However, with demand slowing down, heavier crude oil usually backs up first as refiners around the world favor sweeter grades which produce higher gasoline yields.
    These are just a few signs that the world is in an oversupplied state, which leads to speculation that OPEC may consider imposing lower production quotas on members in the latter part of the third quarter, or early fourth quarter.
    A senior Iranian Oil Ministry official said Monday there are no indications the OPEC will lower output in their next meeting, scheduled for September 11 in Vienna.
    It's been widely speculated that Iran's heavy crudes have been stored, unwanted, in tankers for weeks, with estimates ranging from 15 to 30 million barrels sitting in make-shift storage.
    It's no secret that Saudi Arabia favors lower prices, or at least a return to $60 per barrel oil as concern grows that the backlash from consumers will be stronger than originally believed.
    In European markets on Monday, oil prices were falling as there is growing expectations that there will be a deal to end hostilities in Lebanon. There are also signs that gasoline demand in the U.S., which uses about 10 percent of gasoline consumed worldwide, is slowing down. The timing is working against "bulls" as two-thirds of the gasoline season is over.
    A slowdown in demand in the U.S. will reverberate around the globe, which could lead to lower prices after Labor Day.
  6. JayS


    The problem with Saudi is all the sour they are pulling out of the ground. The cut they made a few weeks ago caught many off guard, they look to be pulling more and more heavy out of the ground (not a good thing).

    We are pull'in as much out of the ground as physically possible, having a very tough time finding any type of NEW quailty man/brain power. Below is one of our newer deep water rigs in the gulf.
  7. JayS



    p.s. Congrats on a good June. Hope July has gone well.
  8. Aaron


    Thanks, Jay!
  9. JayS


    Saudi seeks to tap heavy crude with pilot project

    DUBAI: A pilot project to tap extra heavy crude reserves by steam injection in a zone shared by Saudi Arabia and Kuwait could boost reserves in that area by around 20 per cent, experts said yesterday.

    And if successful it would highlight the role foreign firms can play to open up new capacity in the Middle East, some added.

    Last year, Chevron began a steam injection pilot project in the Wafra field in the Neutral Zone to loosen sludge-like heavy oil that was previously deemed unrecoverable.

    "The first phase of the pilot project is now under way. It involves one steam injection well, four production wells and one observation well," Chevron said. "What is learned from this first phase will be incorporated into the second, larger phase. The second phase entails drilling 16 injection wells and 25 producing wells."

    Chevron declined comment on the potential recovery rate or the potential of moving to commercial output. It did not give a timetable for the second phase of the $300 million project.

    Sadad Husseini, a former top official at state oil firm Saudi Aramco, said the project was an important experiment but that quantities of crude reserves in top exporter Saudi Arabia that would benefit from the technology were not very huge.

    "If we boost reserves it will not be more than one billion barrels. But for Wafra and the Neutral Zone it is important because the reserves there are around 5bn and if you raise them by 1bn, that is 20pc," Husseini said.

    "A lot will be learned from it, but the project is way ahead of its time for Saudi Arabia. It's a preparation for two decades ahead and is of very little use for conventional reservoirs," he added, referring to the Ghawar and Safaniyah fields that produce around 65pc of the kingdom's crude oil.

    The process involves injecting steam into a reservoir to reduce the viscosity of extra heavy oil, defined as less than 22 degrees API. As steam penetrates the reservoir, oil becomes less viscous and can be pumped through production wells.

  10. JayS


    Saudi Arabia's oil a huge question


    The Atlanta Journal-Constitution

    Published on: 07/21/06

    From the Saudi Arabian sands pour more than 9 million barrels of crude oil each day, more than 10 percent of the world's production pumped from what is believed to be the largest pool of recoverable crude on Earth.

    For three decades, it has been Saudi Arabian oil that poured into the market to dampen rapidly rising prices and Saudi cutbacks that pushed prices back up when they were abnormally low.

    Not anymore.

    The Saudis say they are still committed to affordable, stable petroleum. But prices have roughly tripled in four years despite periodic Saudi announcements of plans to pump up production.

    Control, it seems, has slipped away.

    So when the Saudis a few weeks ago suddenly reversed field and announced a production cut, some analysts scratched their heads and wondered if, at long last, Saudi Arabian oil production has peaked. If it has, the effect is potentially huge on oil markets and the price of gasoline at the pump.

    "When the price is high, that's when you want to take out your oil and sell it," said economist Ujjayant Chakravorty of the University of Central Florida. "I am wondering if they have some production issues."

    In the past, the Saudis have repeatedly passed up the chance to maximize short-term profits. Instead, they have seen high prices as a threat to global economies and an incentive for development of alternative energies that would threaten their cash cow.

    When prices have been high, they have pumped more.

    "If your concern were energy market stability and not your income level, you'd put more oil out in the market," said Amy M. Jaffe, energy fellow at Rice University's Baker Institute. "Why do they see something different now? It doesn't make sense to me."

    Supply sufficient

    More than enough oil is being pumped to satisfy global demand. But when extra pumping power shrinks, threats to supply and geopolitical crises become much more worrisome.

    The Saudis explained the recent cuts in production by saying they were just closing the spigot on some extra oil that wasn't high-quality. They say that they cut back only on what is known as heavy crude — less viscous oil.

    Not all refineries can handle that kind of crude, and some refineries that can handle the heavy oil were down for maintenance, the Saudis said.

    Possible shrewd move

    Most analysts agree that the mismatch — heavy crude in a market that prefers free-flowing light crude — is part of the story. But many are also not convinced that it is the whole story. After all, the Saudis could have sold the heavy crude at a discount, which would tend to push all prices lower.

    Some think the Saudis have decided to hold down production because they want more revenue from the oil and they expect prices to rise still more. Oil prices have more than tripled since early 2002, which many in the industry blame on speculation and temporary concern about a few trouble spots.

    If the price of oil is going up no matter what, then slowing the pump may be a shrewd move, said economist James Hamilton of the University of California at San Diego. "If we are entering an era of peak oil, then oil is a very valuable commodity, and it makes some economic sense to be saving it to sell at a higher price."

    Skeptics argue that the world is approaching "peak oil," the halfway point at which a nation's production crests and then inexorably starts to slip. Some, like controversial author and analyst Matthew Simmons, say the Saudis may have reached that point.

    The Saudis agree that at some point, oil production must peak — just not now. Instead, they insist, they will be expanding daily production to 12 million, then 14 million barrels in the next few years.

    Record number of rigs

    The Saudis say they have a record number of rigs operating, part of their plan to keep production growing. But even the scramble to drill more oil wells sparks doubt.

    The Saudis say they are just trying to add spare capacity so they can regain the control over prices that they had for decades. The skeptics wonder whether the search for new oil is just a desperate attempt to compensate for the slow but inexorable slide of production in the massive "king" fields like Ghawar.

    Beneath their sand, the Saudis claim proven reserves of 260 billion barrels. Moreover, they expect to discover 200 billion more in the next two decades.

    "They are not investing enough to get to 15 million barrels a day," said Jaffe of Rice University's Baker Institute. "Don't tell me the number of rigs they have. I want to know, where are the new fields they are opening and when will they come online?"

    How much oil is there to be pumped?

    No one truly knows but the senior oil chiefs in Saudi Arabia — and maybe they are not so sure themselves about how much oil still lies beneath the sand. But even if they are right about how much they have, they must take care not to deplete their fields prematurely, since pumping too fast can accelerate the decline of an oil field.

    "They want to appear to be helping," said petroleum geologist Christopher Kendall of the University of South Carolina. "On the other hand, they do not want to destroy their oil fields. They need to husband their resources. They have to find engineering strategies so they don't lose large parts of their field by overproducing."

    Economist A.F. Alhajji of Ohio Northern University, contributing editor for World Oil magazine, dismissed the idea of peak oil as the echo of an old notion. That's a fear first broached in 1862 and repeated periodically since, he said.

    "We don't have the right methodology to estimate. It could be that oil already peaked. It could be the peak won't come for another 200 years."

    War, tension

    The recent spike in oil prices may have been spurred by war and geopolitical tension. But behind the climbing price is the fear that oil producers may not be able to make up for any disruption in supplies.

    If Saudi Arabia — the nation that had always filled the gap — no longer has the excess capacity to plug holes, then a modest disruption could send prices soaring.

    Of course, the higher the price of oil, the more incentive there is to find more of it.

    And since oil prices have not been high for all that long, oil analysts say that it is simply too early to see the results of new explorations and methods.

    But it is not only about availability. It is also about cost — the costs of extracting it, refining it, delivering it — in addition to the risk factor that has been added to oil prices these past several years.

    Oil in Saudi Arabia has always been notoriously inexpensive — costing just a couple dollars a barrel to produce. But the nation's giant fields have been squeezed for decades. They require ever more complex technology to keep producing.

    Even if there is plenty more oil, Saudi Arabia has indeed hit a turning point, Kendall said. "The peak for cheap oil has been reached — absolutely."

    If Saudi production languishes for a month or two, that won't prove the peak has arrived, Hamilton said. On the other hand, if world demand for oil keeps growing while the pace of Saudi pumps does not, that would show they either won't or can't keep up.

    "Right now, I am not really sure how to read things beyond concluding that the Saudi statements do not make sense, do not fit the market situation and don't fit what they are doing," Hamilton said. "The evidence is going to dribble in."
    #10     Jul 28, 2006