OPEC’s new free-for-all production stance could lift the lid on millions of barrels of additional crude supply next year.
“Everyone does whatever they want” now that the Organization of Petroleum Exporting Countries has effectively abandoned its formal production target, Iranian Oil Minister Bijan Namdar Zangeneh said after the group met on Friday. What Iran wants is to revive exports by about 1 million barrels a day when sanctions are removed next year. It’s not the only member with potential to swell the global oil surplus, with millions of barrels of capacity lying unused under the sands of Saudi Arabia and Libya.
“It means more OPEC oil next year,” Jamie Webster, a Washington-based oil analyst for IHS Inc., said of the organization’s Dec. 4 decision. “OPEC is not cutting. With Iran looming, as well as largely only upside risk for Libya, the smart money is on more, and not less, production.”
Extra Barrels
Oil slumped 2.7 percent in New York on Friday after OPEC ended its meeting without specifying a new production quota, saying instead that it would keep output near current levels of 31.5 million barrels a day. Crude prices extended losses below $40 a barrel on Monday.
Libya’s output has been strangled by the rivalry of two separate governments, protests at oil fields and attacks from Islamist militants. The holder of Africa’s biggest crude reserves is pumping at roughly a quarter of its pre-war capacity of about 1.6 million barrels a day. The International Energy Agency currently doesn’t count the nation’s shutdown oil fields as “spare capacity” and said October’s recovery in output to 430,000 barrels a day “may prove fragile.”
Saudi Arabia, OPEC’s biggest and most influential member, has for years held back output in reserve for use during a crisis. It was idling about 2 million barrels a day, or 16 percent of total capacity, for this purpose in October, the IEA estimates.
Saudi Arabia may choose to tap those unused reserves as it faces increasing output from regional rival Iran next year, rather than making way for those barrels, according to Mike Wittner at Societe Generale SA. Discarding OPEC’s commitment to adhere to any particular limit may signal Saudi Arabia’s readiness to do exactly that.
“If Iran is very aggressive in its return you are likely to see Saudi push with
incremental production,” said Webster
joe on Mon, 7th Dec 2015 7:58 am
The real war will be oil versus gas, if it gets cheap enough. Goodbye to emissions targets if it does, gas will get flared into the high sky.
buddavis on Mon, 7th Dec 2015 8:40 am
Various state agencies that regulated Oil and Gas output when the US was the worlds swing producer also had “Quotas” on each well or lease. They got rid of them when they became irrelevant. I think this is closer to that then some master plan to add 5 million barrels a day to markets. I am sure some OPEC countries can increase production, but my guess is there won’t be much additional crude produced. This just allows a few of them to increase production while the other countries output stays flat or declines.
rockman on Mon, 7th Dec 2015 10:36 am
“They got rid of them when they became irrelevant.” Actually they didn’t get rid of the Texas Rail Road Commission proration regulations. They are still the law of the land and the TRRC meets every month to set the next month’s allowable. But it is true that since the early 70’s the allowable has been set at 100%.
Of course it would unleash the Mother of State’s Right battle with the feds if the TRRC ever decided to restrict production from our oil wells. And a battle with oil producers in the state. But there is an incentive for the TRRC to do so…just as there is for IOPEC members: the state receives about 6% of the value of all the oil produced here. So Texas, along with all the oil exporters, is seeing assets sold at a lower price. Assets that are finite and thus losing that share of revenue forever.
And yes: Like others I do find it hilarious to think that anyone believes the OPEC have been holding to any quotas.