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Call on OPEC


OPEC meets today and looks likely to roll-over its current production target. That target was set at 30mmb/d last December and contains no production split by member.

OPEC and the EIA both published their short-term forecast updates yesterday and the IEA will publish its update today. Both the OPEC and EIA reports were little changed from their previous iterations and they forecast calls on OPEC crude production in 2013 of 29.7mmb/d and 30.4mmb/d respectively. So a roll-over of the production target of 30mmb/d would look broadly in line with current estimates for the call on OPEC’s crude production. However, OPEC’s problem is that current production is some way in excess of that 30mmb/d figure.

According to OPEC, which uses third party sources, its production in November was 30.8mmb/d while the EIA puts OPEC crude production at 30.5mmb/d. Other sources have a range of 30.5mmb/d to 31.5mmb/d. Although total OPEC production peaked in the middle of the year, the decline evident since August appears to have flattened off. The main reason for that weakness has been a fall in Nigerian production, which is likely to prove partly temporary as problems with extensive flooding are overcome. In addition, both Iraq and Angola are likely to see production increase as new capacity comes onstream. For the moment at least, Iranian production appears to have stabilised. While although off its peak, the Saudi surge put on in the summer of 2011 remains largely in place.

On average, these sources put current OPEC production at 30.9mmb/d, almost 1mmb/d above the likely call on OPEC. Production data strongly suggests that OPEC has been over-producing the market all year, and this is clearly showing up in inventory. The EIA report notes that forecast days of supply in the OECD are at the highest end-of-year levels since 1991. We expect the IEA report will also reflect that emphasis.

In our view, the Brent price remains comparatively robust despite over-supply and rising inventory. Although there is arguably a slightly better current tone to global economic news, and recent robust China oil demand figures might have raised expectations that global oil demand will prove stronger than currently forecast for 2013, it looks unlikely to us that this will prove sufficient to alter the current dynamics. Without such a change, we continue to believe that oil price risk lies to the downside. 

Colin Smith, Marc Jacouris
VTB Capital analyst

OPEC, EIA, Iran, Iraq, IEA, China, oil

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