Related Content in zawya     Overseas Companies  BP  info: news - profile - officers

BP Sees OPEC Oil Smoothing Market In ‘Year Of Disruptions’

BP’s Statistical Review Of World Energy 2012 describes 2011 as “a year of disruptions,” in which political upheaval and natural disasters translated into huge and unpredictable disruptions in the global energy system. Yet because of a massive increase in OPEC oil production, aggregate data for the year indicates that energy fundamentals continued on trend, said BP Chief Economist Christof Ruhl as he launched the review in London on 13 June.

“Political unrest and violence caused outages in oil and gas production in parts of the Arab world,” said Dr Ruhl. “The cessation of Libyan oil exports alone removed 1.2mn b/d of crude for the year. Adding in outages of natural gas and losses in other countries shows a total decline in excess of 72mn tons of oil equivalent (528mn barrels of oil equivalent) compared to 2010 production. The shut-down of Fukushima and earthquake related damage to Japanese coal-fired power stations, plus the subsequent closure of additional reactors in Japan and Europe led to losses of 43mn toe (315mn boe). In addition, 2011 saw for the first time ever an annual average oil price above $100/B; the first release of strategic petroleum reserves since 2005; the largest increase in OPEC production since 2008; an exceptional swing in European weather; and huge floods in Australia impairing coal production – to name but a few. It was anything but a boring year. And yet – nothing in the aggregate data indicates anything out of the ordinary.”

Both GDP and energy consumption in 2011 were in line with their long term trend – GDP growth at 3.7% was slightly faster than primary energy consumption growth at 2.5%. But the oil price changes showed that major adjustments took place “underneath the smooth aggregate surface.” The Brent crude price increased by 40% to average $111/B for the year. Dr Ruhl attributed the price hike mainly to the sustained loss of supplies caused by upheavals in the Arab world, primarily Libya, and the “slow pace of other OPEC members filling the void. Libyan output last year fell by 1.2mn b/d or 71% – the largest decline in a country’s oil production since the aftermath of the Soviet collapse 20 years ago. Several other countries in the Middle East and North Africa also experienced supply losses, some of which have continued to this year. Yet global oil production increased last year by 1.1mn b/d. Moreover, virtually all of that increase was from OPEC countries. The reason is a massive increase in oil production among OPEC members in the Arabian Peninsula and Iraq, who collectively increased output by 2.5mn b/d over the year, in the event meeting not only the loss of Libyan supply but also the growth in global oil demand. Saudi Arabia alone increased output by 1.2mn b/d, with production [crude plus NGLs] reaching a record 11.2mn b/d.”

Consumption Growth Weak

Consumption growth, meanwhile, was weak. Dr Ruhl said that global oil consumption rose by just 0.7% or 600,000 b/d in 2011, a little over half the 10-year average of 1.1mn b/d or 1.2%, despite GDP growth staying on-trend. Non-OECD consumption grew by 1.2mn b/d or 2.8%, with China once again seeing the largest increase, at 500,000 b/d. There were also consumption gains in Russia of 160,000 b/d, India of 140,000 b/d and Saudi Arabia of 110,000 b/d. Consumption declined in North Africa and growth was below average in the Middle East, which was “yet another glimpse of the political upheaval in these regions, but also reflecting subsidy cuts in Iran, driven by sanctions.” OECD consumption continued its long term decline, falling by 600,000 b/d to its lowest level since 1995.

The consumption data confirmed that demand responses to high international prices are disproportionally concentrated in OECD economies, where subsidies of oil prices are absent. “However,” said Dr Ruhl, “emerging economies are becoming more price sensitive because subsidization in this segment has decreased. Only about 20% of the world’s oil consumption increase was in countries with subsidies last year, down from nearly 40% in 2008, the previous year of record high oil prices. Because subsidies are expensive and because of the realization that energy efficiency matters in international competition, the cycle of rising oil prices resulting in rising subsidies appears to have been broken. We estimate that non-OECD countries passed roughly 70% of last year’s oil price increase on to consumers, up from about 25% in 2008. Of the countries that continue to subsidize consumption, most are the oil exporters themselves – in 2011 this group, which accounts for less than one-quarter of global oil consumption, contributed two-thirds of global demand growth.”

Price Trajectory Explained

Dr Ruhl observed that as 2011 began oil consumption was outpacing production, reflecting the “legacy of aggressive OPEC production cuts” to counteract the effect of the global recession on oil demand. The supply-demand gap widened significantly after the loss of Libyan exports during the revolution aimed at ousting the Qadhafi regime, which began in February 2011. “Even with the large increase in output from Saudi Arabia and other Gulf states,” said Dr Ruhl, “overall OPEC output did not surpass pre-disruption levels – and global production did not exceed consumption – until late in 2011. This timing left inventories well below average despite the SPR release and in this way supported crude prices throughout the second half of 2011.”

So far this year, global production has exceeded consumption by a large margin. “Although tensions surrounding the Iran nuclear stand-off supported another spike in prices early this year,” said Dr Ruhl, “inventories have now moved above the five-year average, setting the stage for the significant weakening in prices seen in recent weeks, with Dated Brent falling below $100/B for the first time since February 2011.”

Middle East And North Africa Oil Reserves, Liquids Production And Consumption

*  Crude oil and NGLs.

†  Inland demand plus international aviation and marine bunkers and refinery fuel and loss.

Source : BP Statistical Review of World Energy 2012 .

© Copyright MEES 2012.