OPEC will receive more than $1 trillion in net oil revenues for 2012 as oil prices reach a record annual average price for Brent, despite the slow global economic recovery.
According to OPEC’s oil market report for December, the first quarter of this year saw a significant increase in the value of the OPEC Reference Basket. The upward push was driven by factors such as disruptions in the North Sea and some countries in the West and East Africa, supply fears due to geopolitical tensions and increasing speculative activities in the crude futures markets led the OPEC basket’s value to reach over $120/b.
Prices dropped below $100/b in the second quarter as ample supply and concerns about the economic outlook, especially in Europe, outweighed any lingering supply fears leading to a speculative sell off. The third quarter saw prices climb back up to around $110/b and the OPEC daily basket price for the end of 2012 was $107.79 a barrel.
The huge revenue was unevenly distributed among the OPEC members with Iran taking a much smaller share of the revenue due to American and European sanctions. Iran’s crude oil production fell from 3,391kb/d in the first quarter of 2012, to 2,734kb/d in the third quarter. Iranian oil production levels have now been overtaken by Iraq, Kuwait and more recently the UAE.
Elsewhere, there were some considerable production gains, notably in Angola where output was up by 108,000 bpd following the completion of field maintenance work.
Iraq’s production was also on an upswing, with crude production increasing from 2,705kb/d in the first quarter of 2012 to 3,129kb/d in the third quarter. But more recently, the country has seen production level at 3.2mb/d. Further expansion of Iraq’s upstream capacity will depend on the development of key infrastructure projects, which so far have seen slow progress.
Total OPEC production (including Iraq) was down for the second consecutive month to just under 31mb/d according to the National Bank of Kuwait’s (NBK) report.
Oil demand growth is expected to remain sluggish through 2013, while oil supplies are expected to rise. As a result, global oil balances should loosen, says the NBK’s report.
However, the weak global economy will only allow oil demand growth to improve slightly in 2013, following a modest rise in 2012. The NBK expects incremental oil demand of around 0.7 to 0.9mb/d, or 0.8% to 0.9%, up from 0.7 to 0.8mb/d in 2012. The improvement is expected to come from OECD markets where demand is expected to fall at a slower pace than in 2012.
Growth in emerging economies on the other hand, is expected to be at least 1mb/d, but is expected to slow. The NBK cites a combination of fiscal austerity, structurally weak growth in the Eurozone, banking sector weakness and growth in alternative fuels as undermining oil demand in developed markets for the foreseeable future. In emerging markets, however, there is still scope for oil demand growth to remain solid, particularly through the use of looser policy to offset weakness in major export markets.
The NBK also noted that crude output of the OPEC-11 (i.e. excluding Iraq) fell slightly by some 64,000b/d in October to just under 27.8mb/d, a 12-month low. The bulk of this decline came from Nigeria, where output plunged to its lowest level in 3 years. This was the second month in which Nigeria saw declines of 100,000b/d or larger due to a combination of severe flooding in the oil producing Niger River Delta region and a force majeure declared by Shell following a series of sabotage and vandalism incidents.
