World Needs Record Saudi Oil Supply as OPEC Convenes.

http://www.bloomberg.com/news/2014-06-08/world-needs-record-saudi-oil-supply-as-opec-convenes.html

OPEC ministers say they will almost certainly leave their oil-production ceiling unchanged when the group meets this week. What really matters for 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 Organization of Petroleum Exporting Countries would climb too high and Saudi Arabia needed to cut to make room for other suppliers. They changed their minds after production fromLibya, Iran and Iraq failed to rebound as anticipated, and industrialized nations’ stockpiles fell to the lowest for the time of year 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 consultant.

Even as the North American shale revolution propels U.S. 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 U.S. 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.

Supply Risks

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 a barrel, from $100.25 as of Dec. 31. The grade has averaged $108.25 a barrel this year, compared with $108.70 in 2013. It rose 0.5 percent to $109.15 a barrel as of 10:34 a.m. in London.

OPEC, which produces about 40 percent of the world’s oil, will meet in Vienna on June 11 to discuss its 30 million-barrel daily output target. Ministers from Saudi Arabia, Angola and Kuwait said they expect no change, as did 22 of 23 analysts and traders surveyed by Bloomberg News.

Low Inventories

The International Energy Agency, the Paris-based adviser to 29 nations, recommended on May 15 a “significant rise in OPEC production” to meet demand of 30.7 million barrels a day in the second half of the year. Oil inventories in advanced nations were at 2.62 billion barrels in April, the lowest for that month since 2008, the year Brent reached a record $147.50 a barrel, IEA data show.

Boosting output that high would be “a Herculean task for the group to surmount given that production has been below 30 million barrels a day for the last five months,” London-based Energy Aspects said in a May 27 research note.

Saudi Oil Minister Ali Al-Naimi told reporters in Seoul on May 12 that any supply shortage in the oil market can be covered. The kingdom is capable of producing as much as 12.5 million barrels a day of crude and pumped 9.67 million in May, according to data compiled by Bloomberg. Media officials at Saudi Arabia’s oil ministry in Riyadh weren’t available to comment when contacted by Bloomberg on June 6 and yesterday. There was no response to an e-mail to Saudi Aramco’s media department yesterday.

Saudi Supply

Estimates vary on how much Saudi Arabia needs to produce before the end of the year. IHS projects about 10.3 million and while Societe Generale says between 10.2 million and 10.5 million barrels a day in the third quarter. The high of 11 million that Energy Aspects says could be needed from Saudi Arabia would be more than the quarterly peak of 10.1 million reached in late 1980, according to OPEC data.

“At the time of the last OPEC meeting, there was a fair amount of concern about what would happen if disrupted production in key countries starts to come back in a big way,” said Mike Wittner, the head of oil market research at Societe Generale SA in New York. “It’s not all happening in a big way. It means the market needs the Saudis to produce more crude.”