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Non-OPEC crude could drop oil prices in 2004, predicts IEA; Herrera say it’s unlikely
Kay Cashman Petroleum News Publisher & Managing Editor
Oil supplies from independent producers in Russia and West Africa will overtake growth in global demand for crude next year, potentially undermining the Organization of Petroleum Exporting Countries’ efforts to maintain high oil prices, the International Energy Agency said July 11.
In its monthly oil market report the Paris-based agency said that oil prices are likely to remain firm for the rest of the year, but increasing output from non-OPEC producers and the eventual recovery of Iraq’s crude exports will pose a challenge to the oil cartel to keep prices within its $22-$28 per barrel price target window.
World demand in 2004 is expected to grow by 1.05 million barrels per day to 79.1 million after an increase this year of 1.01 million bpd.
IEA said it saw non-OPEC countries pumping another 1.32 million bpd into the market in 2004, as compared to a growth of 1.11 million bpd in 2003.
The extra non-OPEC oil should be more than enough to supply incremental world oil demand, the agency said, with OPEC losing market share for the fifth year in a row. (See page 1 related OPEC story.)
IEA expects demand for OPEC crude next year to drop by 700,000 bpd to 24.6 million bpd, 1.1 million bpd less than the agency estimated the cartel produced in June.
“Pressure for lower OPEC production may prove particularly intense early in 2004 (second quarter),” when demand sinks to a seasonal low, IEA said in its report. Herrera predicts OPEC will hold firm Petroleum News’ favorite oil price guru, oil and gas consultant Roger Herrera, does not think OPEC will allow crude prices to get down below $20 per barrel.
“Many of the OPEC nations are a rag-tag bunch who are too practiced in graft to be logical, but unless one can identify some obvious self interest in allowing oil prices to decline significantly it is difficult to see why they would allow oil prices to stray outside their agreed range, between $22 and $28. … I think they will try hard not to let that happen,” Herrera told Petroleum News July 17.
“They cheat on each other all the time and therefore their ability to control output, and therefore price, is not as acute as it should be. … Still, OPEC has demonstrated that it has the means to control the price of oil and I argue that they will use those means,” he said. Peak oil production biggest concern But if the price of oil does go below $20, which Herrera insists is “highly unlikely … we should all be concerned because it will stimulate economic recovery and worldwide demand for oil and thereby accelerate the time to peak oil output,” after which time Herrera, and a worldwide contingency of scientists, believe oil production will go into permanent decline. (The Hubbard curve, which was accurate in predicting the peak in U.S. domestic production, predicts a peak in world oil production in the next three years.)
“After that, life will probably become very difficult,” Herrera said.
The variables that could affect the price of oil in the “next year or so are very unpredictable given the politics of the Middle East and our presidential election. It would be a hazardous exercise to guess,” he said.
More interesting than the short term oil price “is the relative value of the dollar and euro and the possibility that petrodollars will be replaced by petroeuros. Who knows, more surprising things have happened recently,” Herrera said.
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