Call on OPEC Crude Eases Up for 2010 as Group Compliance Slips Further

The International Energy Agency (IEA) and OPEC have revised up "calls" on OPEC crude for 2010, although the outlook for crude from the leading producers remains relatively bearish in both camps, based on production growth elsewhere and still-muted demand.

In its February report, OPEC puts the call on its own crude at 28.75 million b/d through 2010, starting at 28.41 million b/d in the first quarter, and rising to 29.57 million b/d by the fourth quarter, when global economic demand is expected to have gained strength. That is not much changed on its assessment of the call on OPEC in 2009, despite a 150,000-b/d upward revision on its last 2010 figure based on downward revisions to estimates for unconventional production and OPEC natural gas liquids (NGL) output. The IEA puts its call on OPEC crude and stock change at 29.4 million b/d through the year, reflecting a more bullish view of demand in 2010 generally, where its figure for global demand is a significant 1.4 million b/d higher than OPEC, at 86.5 million b/d. Nonetheless, where the producer group is concerned, it sees the "call plus stock change" starting out at a more modest 29 million b/d for the first two quarters before reaching nearly 30 million b/d in the last two quarters of the year, again reflecting the same expected trajectory for global economic growth. By contrast, current output amongst the OPEC-12 is seen at some 29.1–29.2 million b/d, the highest level since current quotas were introduced in January 2009—leaving compliance at the 55–58% range for the OPEC-11 members bound by quotas set in December 2008 and retained in meetings since.

Particularly poor in compliance terms are the Sub-Saharan African members, Angola and Nigeria—both of whom are estimated to have completely dismissed quota restraint in January 2010, according to data from the IEA, which estimates zero compliance. Iran and Venezuela are also below the 50% compliance rate, leaving the Gulf States to bear the brunt of output restraint, while Iraq output continues at recent levels a shade short of 2.5 million b/d. Although Iraq is still immune from quota figures, production increases envisaged in its recent licence awards are likely to raise hackles in the rest of the group, who are already sensitive about quota allocations, although OPEC Secretary-General Abdullah al-Badri has recently tried to play that down, saying that a "re-accommodation" would not be required for four to five years from now where Iraq is concerned. More tension is likely to be added by Angolan production start-ups in the interim, with upwards of 700,000 b/d of new oil in the project pipeline previewed before 2014, against a current quota level of 1.5 million b/d and sustainable capacity of 2.1 million b/d, making for the largest net-growth prospects outside Iraq, which will add to pressure for a comprehensive review of allocations in the medium term.

Outlook and Implications