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Global crude markets: Relative calm in offing Stratfor report says Iraq, Russia hold key to crude prices Gary Park Petroleum News Calgary Correspondent
Global oil markets are in balance for the first time since 1995 and should remain that way so long as the United States does not invade another major oil-producing region, says Stratfor, a Texas-based private intelligence company.
In a July 11 report, it said that after an “epileptic” year, the markets have a chance of experiencing a protracted period of relative calm as the U.S. economy recovers and OPEC backpedals by absorbing nearly all new fresh production from Iraq and Russia. As volumes from those two countries strengthen, OPEC’s market control will weaken, although price declines will be only gradual.
Stratfor (short for Strategic Forecasting) pointed to two basic trends that it expects will influence markets over the next year:
• The Organization of Petroleum Exporting Countries will do a competent job of reducing its production to allow for Iraq’s return, while increases from Algeria and Kuwait will outweigh Venezuela’s protracted decline, resulting in a small net production gain by OPEC.
• Based on sources at the U.S. Energy Information Administration, Stratfor predicts global consumption should raise demand by about 1 million barrels per day, driven largely by demand from the United States and the developing world — a number that will mirror export increases from Russia.
The report said Iraq’s return to the markets has lagged behind the best-case scenario, but not because of damage to the Iraqi oil infrastructure, which it estimates at $250 million to $300 million — well within the $500 million contract initially granted to Halliburton’s Kellogg, Brown and Root. Random looting in Iraq more serious Much more serious has been the random looting that has added about $750 million, excluding recent sabotage attacks, to the repair bill, while Iraq’s post-war oil sales to date have been a mere $200 million.
Stratfor said the attacks “clearly have involved individuals knowledgeable about the sector’s operations, who have targeted monitoring stations, valves and pipeline joints ... in an effort to maximize disruption with minimal effort.”
Compounding those problems is a shortage of equipment and spare parts that stretches repairs over weeks, instead of just days.
Stratfor also said a political commitment is needed from Washington to shut down thieves who are stealing crude, filling up small ships and sailing through the Persian Gulf for ports where they can make sales.
But the report found some comfort in the fact that 90 percent of continuing attacks on U.S. personnel and infrastructure have been confined to a triangle in central Iraq, where only the East Baghdad field and a reversible pipeline have been affected.
The violence is “not within areas that are critical to the export of crude oil,” where local forces have an interest in protecting the energy assets, Stratfor said.
Although there are obstacles to the return of Iraqi crude to the market, they are “manageable” through the protection of pipelines, pumping stations and refineries.
But, given the security challenges, the Army Corps of Engineers doubts Iraq production can exceed 1 million bpd by the end of summer, with only half earmarked for export, Stratfor said. Russia a key player to watch While OPEC should be able to manage Iraq increases of less than 250,000 bpd, the cartel is faced with continuing instability to Nigeria, where sporadic flare-ups cut into production, and Venezuela, where there will be a slow, steady decline in output until state-owned PDVSA can regenerate itself, a task that could take years.
Stratfor said Russia is the only player to watch other than Iraq and OPEC, now that exports, including refined products, have surpassed 6 million bpd.
Now that Russia has gained access to the primary Kazakhstan export route and plans to triple capacity of its 240,000 bpd Baltic Sea export point by 2005, exports will rise by 500,000 bpd within the next 12 months.
That means Russia “is the one player with the ability to move markets in appreciable ways,” as export potential climbs to 7 million bpd by mid-2004,” Stratfor said.
“But even with the expected increases, Russia is not positioned to overturn global market stability yet,” it said. U.S. demand projected to grow Scoffing at the U.S. media obsession with recession, Stratfor said U.S. economic growth continues to outpace that of Europe, with the International Energy Agency projecting that U.S. demand will grow by 1 million bpd over the three years from the start of 2002 vs. only 1.5 million bpd for the rest of the world and only 400,000 bpd for the developed world combined.
Although U.S. inventories dropped 15 percent in the first quarter of 2003 from the 2001 average, non-U.S. Organization for Economic Cooperation and Development crude inventories are up slightly more than 1 percent for the same period, it said.
To that end, Stratfor said inventories outside the United States “while perhaps not as robust as they could be are well out of the danger zone.”
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