OPEC set a collective production target of 30mmb/d last December which was seen as the level likely to match the call on OPEC crude through 2012 at that time. As it turns out, the call on OPEC crude in 2012 looks likely to come in almost exactly in line with OPEC’s then forecast. However, actual OPEC crude production has exceeded that target by an average of 1.5mmb/d for the year to October and has exceeded the target every month of the year. Consequently, it is no surprise that inventories are building where we can see them and are now above the top of the range for crude in the OECD. The mismatch in crude and refinery side calculations for Chinese demand also strongly suggests that inventories have built in China by at least 50mmbbl and most likely have also increased elsewhere, given the apparent scale of the oversupply.
OPEC looks likely to leave its current quota unchanged when it next meets in a week’s time on 12 December. That would also be broadly in line with forecasts for the call on OPEC crude in 2013, although forecasts are generally for a modest YoY drop in the call on OPEC crude of around 400kb/d.
Public comments from various member states so far express equanimity with the state of the market. We expect that is largely because the price remains comparatively robust and still well above the USD 100/bbl mark which Saudi Arabia has talked of as a target while most member states are producing almost flat out, with the exception of Saudi Arabia.
There could be a more lively debate around a successor to Abdalla El-Badri as Secretary General. Meetings earlier in the year failed to resolve the issue, with candidates from Saudi Arabia, Iran and Iraq all still vying for the post, we understand, after the Ecuadorian candidate dropped out.
It remains our view that it is only a matter of time before the ongoing build in inventory outweighs the ability of geopolitical worries or demand hopes to sustain current price levels and it would not be entirely surprising if oil markets were to give OPEC a little test in the run up to the meeting.