OUTLOOK ’14: Crude markets to be shaped by economy, Mideast

By Tony Dillon

LONDON (ICIS)–The crude oil markets in 2014 are expected to continue along similar lines to this year with no real concerns over overall supply levels and the main influences being the state of the global economy as well as continued concerns over tensions in the Middle East.

Undoubtedly, the main impact on the markets will come from the possible lifting of sanctions against Iran if it lives up to the promises made in a compromise deal with western nations over its disputed nuclear programme.

Predictions that Iranian production could have fallen to as low as 1.0m bbl/day during 2013 have proved unfounded and the Islamic Republic has held relatively stable at around 2.6-2.7m bbl/day. However, Iran’s oil minister has claimed that if sanctions are lifted, production will be raised to 4.0m bbl/day, regardless of the effect on market prices.

At its December meeting, OPEC agreed to leave its output quota unchanged at 30m bbl/day for the following six months in the interest of maintaining market equilibrium. In taking this decision, member countries re-confirmed their readiness to promptly respond to unforeseen developments that could have an adverse impact on an orderly and balanced oil market.

OPEC’s monthly oil market report for December showed that OPEC production in November had fallen by 193,000 bbl/day to 29.63m bbl/day.

The Monthly Oil Market Report from the International Energy Agency (IEA) was roughly in line with this, showing estimated OPEC production in November at 29.73m bbl/day, a decrease of 160,000 bbl/day over the previous month and down from 31.22m bbl/day in November 2012. This was the fourth consecutive month that OPEC production fell and was mainly attributed to the lack of virtually any production in strife torn Libya.

The IEA report forecast the call on OPEC crude in 2014 at 29.3m bbl/day, down from 30.0m bbl/day in 2013. It also forecast global oil demand growth for 2014 at 1.2m bbl/day, taking consumption up to an average of 92.4m bbl/day, an increase of 1.3%.

OPEC showed slightly different estimates for 2014 with global demand at 90.84m bbl/day, an increase of 1.16% over 2013, with the call on OPEC production in 2014 at 29.57m bbl/day.

The global powerhouse economies of the US and China are showing optimistic signs of recovery, although this could mean that the US Federal Reserve could soon look to start trimming back on its programme of economic stimulus.

Even in the eurozone, the outlook seems to be looking a little more optimistic, but few would suggest that the debt crisis has been solved.

Earlier in the year, Libyan production was almost back to the level of around 1.6m bbl/day achieved during the Gaddafi era, but subsequently strikes, protests and attacks by militia have seen production virtually grind to a halt.

The government claims that it will resolve the situation by the end of December and quickly get production back up to maximum levels. The sceptics remain unconvinced though.

Nigerian production is still continually disrupted by sabotage to pipelines by oil thieves who tap into the crude supplies to supply their jungle refineries. Meanwhile, sellers of the lighter Nigerian grades continue to struggle to find new customers for their cargoes due to a distinct lack of interest from traditional buyers in the USA.

These are now well supplied by shale oil from fracking, supplies from Canada and the reversal of pipelines, which now take crude away from the Cushing, Oklahoma, delivery hub to the US Gulf refining region.

Indeed there are already forecasts that crude supplies into the Gulf region could soon outstrip refining capacity and ExxonMobil has called for restrictions on exporting US oil to be lifted.