World needs record Saudi oil supply as OPEC convenes

The Organisation of Petroleum Exporting Countries (OPEC) ministers say they will almost certainly leave their oil-production ceiling unchanged when the group meets this week.

What really matters for global markets is whether Saudi Arabia will respond to global supply shortfalls by pumping a record amount of crude.

Just six months ago, energy analysts predicted output from the OPEC would climb too high and Saudi Arabia needed to cut to make room for other suppliers.

They changed their minds after production from Libya, Iran and Iraq failed to rebound as anticipated and industrialised nations’ stockpiles fell to the lowest.

This is happening for the first time since 2008.

Saudi Arabia may need to pump a record 11 million barrels a day by December to cover the other member nations, says Energy Aspects Ltd, a consulting firm.

“Now it’s not whether the Saudis will make room, but whether they’ll keep it going and maintain enough spare capacity,” said Jamie Webster.

Webster is a Washington-based analyst at IHS Inc., an industry researcher.

OPEC is increasingly having a hard time just doing its job of bringing all the barrels needed.

Even as the North American shale revolution propels US production to a three-decade peak, supply in other parts of the world is faltering.

A battle for political control in Libya, pipeline attacks in Iraq and prolonged sanctions against Iran are preventing those nations from reviving output.

While US crude inventories rose to a record in April, restrictions on exports are keeping those supplies in the country, tempering forecasts that global oil prices will decline this year.

Deutsche Bank AG, Morgan Stanley, Barclays Plc and Citigroup Inc. raised their 2014 Brent price forecasts over the past three months, citing supply risks.

The median estimate of the four banks climbed to 107.75 dollars a barrel, from 100.25 dollars as of 31 December.

The grade has averaged 108.24 dollars a barrel this year.

OPEC, which produces about 40 per cent of the world’s oil, will meet in Vienna on 11 June to discuss its 30 million barrel daily production target.

Ministers from Saudi Arabia, Angola and Kuwait said they expected no change as did 22 of 23 analysts and traders surveyed by media news.

OPEC’s Economic Commission Board panel that reviews supply and demand levels before the meeting, concluded on 5 June that the current production level is adequate, according to two OPEC delegates.

The International Energy Agency (IEA) recommended significant rise in OPEC production to meet demand of 30.7 million barrels a day in the second half of the year.

Reuters