Opec Output Cuts and Global Oil Market Implications

Strategic Insights -

As Opec prepares to meet on January 17 to discuss potential output cuts, member countries such as Iran, Kuwait, and Libya are urging the organization to implement a reduction of at least 1 million barrels per day (b/d) to balance the market and address oversupply. Meanwhile, Opec President Ali Rodriguez estimates that the market is oversupplied by 2 million b/d, while US Energy Secretary Bill Richardson questions the need for an Opec cut, citing "very high" prices.

Key Takeaways:

  • Iran, Kuwait, and Libya are pushing for Opec to cut output by at least 1 million b/d to balance the market, citing oversupply and the need to lower prices.
  • Opec President Ali Rodriguez estimates that the market is oversupplied by 2 million b/d, while US Energy Secretary Bill Richardson questions the need for an Opec cut.
  • Saudi Arabia achieved a budget surplus of $12 billion in 2000, the first since 1981, due to higher oil revenues, and aims for a balanced budget in 2001 with both spending and revenues forecast at $57 billion.
  • Kuwait's output capacity is set to rise by 150,000-200,000 b/d in early January with the completion of gathering station number 27, boosting capacity to 2.4 million b/d.
  • Worldwide exploration and production (E&P) spending is expected to rise by 19.1% in 2001, according to a survey of 344 firms by US investment bank Lehman Brothers.
  • Shell will continue to test potential upstream projects as low as $10/bbl, despite criticisms that its hurdle rates exclude many developments viable at current prices.
  • Texaco is in talks with Shell and Saudi Aramco to sell its stake in the US downstream joint ventures Equilon and Motiva.
  • Canadian producers are under pressure from surging condensate prices, leading to discussions of shut-ins.
  • Venezuela's PdV has signed a deal to supply up to 20 million barrels of heavy crude to Reliance's 360,000 b/d refinery in India.
  • China has set new targets for oil giants Sinopec, CNOOC, and PetroChina, including crude production at 3.27 million b/d and refinery runs at 4.32 million b/d in 2001.
  • Indonesia's Minas term contract renewal talks are stalled due to disagreements over the long-term price outlook.
  • Taiwan's refiner Formosa Petrochemicals has delayed the start-up of its 73,000 b/d desulphuriser unit to early January due to construction problems.
  • Oilspace, a privately funded company, is developing an electronic trading platform for the international physical crude and products market.

Statistics:

  • Saudi Arabia's budget surplus in 2000: $12 billion
  • Opec estimated oversupply: 2 million b/d
  • Worldwide E&P spending growth in 2001: 19.1%
  • Kuwait's output capacity in early January: 2.4 million b/d
  • Venezuela's heavy crude supply to Reliance: up to 20 million barrels
  • China's crude production target in 2001: 3.27 million b/d
  • Indonesia's Minas term contract price hike: 30 cents/bbl
  • Formosa Petrochemicals' desulphuriser unit capacity: 73,000 b/d

Sources:

  • AGM, 18 December, p5
  • AGM, 7 August, p4
  • AGM, 11 December, p2
  • Lehman Brothers survey of 344 firms