The decline is due to a continued weak global economic forecast and rising production in non-OPEC countries, including the United States. The cartel projects than non-OPEC supply will grow by 900,000 barrels a day in 2013, up from growth of 500,000 barrels a day in 2012.
Supply and demand aside for the moment, the cartel is surely concerned with the decline in pricing. OPEC noted a drop of $2.31 per barrel (about 2%) in October, which it attributes to “mounting concerns of a global economic slowdown, a pessimistic future demand outlook, and significant crude stockbuilds in the US.” What’s worse, on November 8, OPEC’s basket price had already fallen to $104.58 a barrel.
November’s report also includes a short discussion on the spread between WTI and Brent crude oil. The report notes that the Seaway Pipeline, which currently transports 150,000 barrels of WTI crude a day from Cushing, Oklahoma, to the Gulf Coast, will get a capacity boost to 400,000 barrels a day early next year. The result: “All of these domestic [U.S.] barrels reaching the coast will relieve the Cushing stockpile — thus supporting WTI — as well as exerting downward pressure on rival imported grades, which are priced against Brent.”
That translates to lower prices for OPEC crude, which translates to more pressure from Iran and Venezuela, among others, to cut OPEC production in an effort to raise prices. Saudi Arabia may be able to beat back the pressure at the OPEC meeting next month, but if demand continues to decline, at some point the cartel’s current quota of 30 million barrels a day will be lowered. The good news for crude oil importers is that most OPEC members almost never pay attention to the agreed upon quotas and pump as much crude as they can.
The November OPEC report is available here.
Paul Ausick
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