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EIA chief: oil price spike will subside Herrera: Decreasing output from OPEC member Syria another example of failure of technology, exploration to stem worldwide decline Kay Cashman & Alan Bailey Petroleum News
Current crude oil prices above $80 a barrel can’t be attributable solely to market fundamentals and, unless there is a major supply disruption, are unsustainable over the next few weeks and months, the head of the Energy Information Administration said Sept. 21.
EIA chief Guy Caruso said that oil market fundamentals continue to remain “very strong,” and the price rise in past months was “largely because of a need for more crude to be put on the market.”
But, he told Dow Jones Newswires, “We’re using a price assumption for fourth and first quarters of around $70, so clearly some of this additional price upside is not directly attributable to fundamentals.”
West Texas Intermediate traded at record highs Sept. 20 above $84 a barrel on the New York Mercantile Exchange, falling to $81.42 a barrel Sept. 21 in the midst of fears that tropical storms in the Gulf of Mexico could curtail output.
Prices not sustainable “I think that current prices are unsustainable,” Caruso said. The EIA chief said, however, the sustainability of $80-a-barrel prices depends on global economic growth, whether the Organization of Petroleum Exporting Countries delivers on promised production increases, and if there are no major supply disruptions in major producing regions, including in the Gulf of Mexico.
Caruso noted that his agency’s price forecast included OPEC increasing output by 300,000 barrels per day in the fourth quarter, 400,000 bpd in the first quarter of next year, and significant inventory draws.
He said the crude contract price rise following OPEC’s decision earlier in September to boost production by 500,000 bpd was likely based on the market’s perception that the increase was either too small, or that the cartel might not be disciplined in follow through with an increase.
OPEC members currently pump around 2.5 million bpd, after hiking output to 2.6 million bpd earlier this year.
Ability of OPEC to boost output in doubt That’s a perception that was fueled in part by two announcements. On Sept. 23, the state-run Abu Dhabi National Oil Co. said the United Arab Emirates, an OPEC member, will cut oil output by around 600,000 bpd in November, for scheduled maintenance work at three offshore oil fields.
Abu Dhabi did not say how long the work would take, but said it had taken measures to meet its production commitments.
On Sept. 23 more bad news came from another OPEC member. According to Syria Oil Minister Sufian Al-Allaw, oil production in Syria was expected to drop to 360,000 bpd next year.
Syria’s oil production has traditionally been in the range of 500,000 bpd; more recently, Allaw said it has been at 385,000 bpd.
Allaw said production of his country’s crude peaked in 1995 and 1996, and that wide-scale exploration was under way for new sources of oil in Syria.
Herrera issues warning against complacency Petroleum News asked oil and gas consultant Roger Herrera to comment on the news from the UAE and Syria. Herrera said:
“First, 600,000 barrels of oil withdrawn from the world market is a significant chunk and will put considerable short-term pressure on world pricing.
“Second, there remains some doubt at the ability of Saudi Arabia — i.e. OPEC — to increase supply by 500,000 barrels of oil a day.
“Third, UAE is probably the most transparent of the Arab producers and the one with the most to gain from efficient operations and proper maintenance. The expenditures that it is incurring in the amazing development of its desert kingdom are immense by western standards and are not yet self supporting. Consequently, oil income and a positive open attitude to western investors are critical to its long-term future. In other words the shut-in maintenance of major oil production in UAE is an economic act, not a political one.
“Fourth, it is interesting that such a routine operation can translate into a profound worry about adequate world oil supplies. So many of the apparently unrelated hiccups in world production, which were once ignored, have now become events of concern. And yet many governments and major oil companies do not acknowledge the approach of the peaking of world oil. All the factors are sure indicators of its approach.”
In regard to Syria’s reduced oil output, Herrera said, “Once again it’s an example of the failure of new oilfield technology and exploration advances to affect positively the decline of production after a country’s oil output peaks. The idea that such declines can be reversed or significantly slowed down by the wonders of modern science are sadly lacking in real examples.”
Hopefully, Herrera said, the world has “a few more years of energy innocence when it can continue to ignore the warning signs coming from the most significant oil-producing sector of the world — the Middle East. But, it would be reassuring if the United States, as the world’s major consumer, made a more objective assessment of the world’s oil future.”
—The Associated Press contributed to this article
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