To say last Wednesday’s OPEC meeting was disappointing would be an understatement. Fissures between countries rose to the surface in an unusually public manner and Saudi Arabia’s Oil Minister Ali Naimi described it as “one of the worst meetings we ever had.”
Thus it should surprise to no one that the 1.00 MMbbl increase in OPEC production — championed by Saudi, resisted by Iran — did not come to pass. Global crude oil prices rallied in response (buoyed by a 4.85 MMbbl draw in domestic crude oil inventories); with WTI hitting a high print of 101.89 on Wednesday and 102.44 on Thursday.
Before the bulls get carried away, they should keep in mind that given aforementioned fissures, what’s necessary for OPEC is no longer necessary for its members — a Saudi industry official “with knowledge of the matter? stated that the country would increase production, while Al-Hayat, one of Saudi’s two major newspapers, reported that exports were set to rise to 10 million barrels per day in July, a 0.50 MMbbl/d increase in June, according to analysts at J.P. Morgan.
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We admit that these numbers should be taken with a grain of sodium - a private firm commenting on an unnamed official’s expectations of an intensely secret state-owned corporation. But if true, what are its implications?
According to Saudi Aramco’s Annual Review for 2010, the country’s crude oil reserves stand at 260.1 billion barrels as compared to Venezuela’s 211.2 and Iran’s 137 billion barrels. Crude oil production in 2010 came to 2.89 billion barrels, in line with 2009, but well below the 3.27 billion peak in 2008.
As drawn in illustrated in today’s issue of The Schork Report , Saudi Aramco’s daily production hit a high of 11.09 MMbbls/d in 2005, suggesting that Saudi has at least another million barrels to bring to market in addition to the half million barrel per day increase in June.
For those concerned about the impact on total OPEC spare capacity, consider that Venezuelan production in 2010 came to just 2.36 MMbbls/d, 1.14 MMbbls/d below its 3.50 MMbbl/d peak. Spare capacity was placed around 5-6 MMbbl/d at the start of 2011, but has declined some due to Libya. However, given that OPEC’s heaviest hitter (Saudi) is still playing softly, we do not believe Wednesday’s meeting was bullish for this summer.
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Stephen Schork is the Editor of The Schork Report and has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.
