The oil market is poised on a cliff as the current 2 million barrels per day (bpd) of oversupply could be flooded in the second half by a further 3 million bpd of new supply from Iraq, Iran, Libya and volumes from other Opec members seeking to regain lost market share.
Opec agreed on Friday to continue with its 30 million bpd production target, but actual production continues to be well over 31 million bpd and the accent remains on market share, rather than underpinning a $100 per barrel price.
Opec secretary general Abdalla El Badri and Opec president Mohamed Bin Saleh Al Sada, who is also the Qatari energy minister, both emphasised the new market realities mitigate against high oil prices if the group is to boost its proportion of the world oil market beyond the current one third share.
Iranian petroleum minister Bijan Zangeneh failed to get any mention of $75 as a “fair price” or assurance that other members would cut production when the lifting of sanctions permits Tehran to add up to 1 million bpd to current productions levels.
Ali Al Naimi, the Saudi oil minister, thought the new policy is working well and his GCC colleagues, including UAE Minister of Energy Suhail Al Mazrouei, saw no reason to lose customers to accommodate rising output from Iran, Iraq and possibly Libya.
After a hiccup in its capacity expansion plans, Iraq has satisfied major oil company demands for service contract payments by giving international oil companies physical supplies of the new Basrah heavy crude to overcome the cash shortage from fighting the ISIS.
Oil minister Abd Al Mahdi told The National the current 3.1 million bpd of exports could realistically be expanded to 6 million bpd by 2020 or possibly higher if the 9 million bpd capacity target were achieved. Political accommodation with Kurdistan is also increasing northern oil flows through Ceyhan, he pointed out.
If the UN sanctions are eased, Iran could quickly add 30 million barrels now in floating and onshore storage. Iranian delegates claim they have the capacity for sustained export increases of over 1 million bpd, but even if the change is only half of this, traders point out that it will be a lot for the market to absorb.
In anticipation of these and other rises, Saudi Arabia has lifted its output by 0.7 million bpd. Still, the kingdom is actually exporting less oil than it did in 1980 because of a quintupling in domestic consumption. In contrast the UAE has significantly increased its exports over the same period as Abu Dhabi consistently adds to capacity.
This is the new emphasis at Saudi Aramco because policymakers have decided that others will simply fill any gap they make available as “swing producer”, a role now clearly abandoned.
The kingdom has also decisively moved to make its market share difficult to dislodge by embarking on many new downstream joint ventures with consuming nations.
This will diminish the world market for crude and light grade producers like Nigeria are squeezed on both sides by the channelling of light shale oils directly into American refineries. It is not surprising that one of the features of the Opec seminar preceding the meeting was the advertising of more attractive concession terms by Nigeria and others who fear getting left behind in the market share race.
Even Russia is participating in the quest for higher capacity by easing taxes and attempting to keep projects under way in the face of western sanctions on oilfield equipment. Russia is even pressing on with exploiting shale oil and energy minister Alexander Novak emphasised to The National that his country probably has the largest shales in the world with a single formation in Siberia offering 140 billion barrels.
Venezuela is also trying to attract international oil companies with much better fiscal terms. The petroleum minister, Asdrubal Chavez, is ironically trying to attract back the companies his brother Hugo scared away.
Mr Chavez got nowhere in his demand that Opec cut back to restore prices to $100 per barrel. But clearly Venezuela itself is joining quietly in the initiative throughout Opec to boost oil production capacity to regain lost market share.
The chief executives of the supermajors were in Vienna to present to the seminar their views on continued long-term growth in oil and gas demand as living standards in the developing world rise and the world automobile fleet expands from 1 billion cars in 2010 to 2.5 billion in 2040. They and other company executives were also meeting on the side with Opec delegations about participating in new upstream opportunities on offer.
The long term may offer solace to Opec and other producers, but the next few years are seem set to ones of fluctuating prices and burgeoning supply as many producers revert to the 1960s in a competitive fray to increase revenues through higher oil output.
The next Opec meeting set for December 4 in Vienna will face many more pressures than the relatively congenial affair just concluded.
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