According to the National Commercial Bank, Saudi Arabia's crude oil production will average 9.7 million barrels a day next year. That compares to a forecast of about 9.4 million barrels a day this year.
Arab Light crude which makes up about 50% of Saudi Arabia's oil output will average USD 105 per barrel this year unchanged from a March 26 forecast. Prices will average USD 100 per barrel in 2013.
NCB further said crude oil prices took recovery recently, reaching their highest levels since mid May with Brent approaching USD 113 per barrel. The market sentiment has become more positive, trending upward as the scale of the rally since June 22nd is nearing 30% and reaching in absolute terms around USD 25 per barrel. While the USD 110 level was attained fairly easily, the USD 115 appears achievable on the current trend in fundamental data and especially geopolitical developments.
The factors that have been driving this rally include:
1). Supply and demand fundamentals, attributed to prompt market tightness and a series of outages and disruptions and combined with modest demand and weaker prospects for non OPEC supply;
2). Geopolitical developments which have been intensifying on the escalation of violence in Syria with potential spillovers of the conflict into the region, as seen by upsurge of violence in Iraq, attacks on pipeline in Turkey and increase in international tension over Iran's nuclear program;
3). The macroeconomic context with Euro sovereign debt worries currently being treated less critical, yet still represent the main mitigating factor for any lengthening of the oil prices rally.
The flow of global supply and demand data has been relatively positive recently, creating some momentum for demand prospects. In its monthly oil market report, OPEC has changed demand outlook, revising expected growth for 2012 up by 0.01 million barrel per day to 0.9 million barrel per day and revising 2013 down by 0.01 million barrel per day to 0.81 million barrel per day.
Complementing OPEC's projections after being bearish on the prospects for demand in its previous report, US Energy Information Administration went back the other way in its latest report, increasing the 2012 demand growth forecast from 0.67 million barrel per day to 0.76 million barrel per day and the 2013 forecast from 0.73 million barrel per day to 0.87 million barrel per day. The non OPEC supply growth forecast was cut from 0.75 million barrel per day to 0.57 million barrel per day for 2012 and kept unchanged at 1.26 million barrel per day for 2013.
Accordingly, the implied call on OPEC crude would increase by about 0.5 million barrel per day for both 2012 and 2013. EIA revised its estimate of the call on OPEC crude for Q3 up by 0.2 million barrel per day to 31.5. It also projected that surplus capacity in OPEC will average 2.3 million barrels a day in 2012 and 2.6 million in 2013. The general trend in the forecasts appears to reinforce Q3 as being likely to be the tightest quarter of the year from a fundamental viewpoint.
Iraq's crude output averaged 3.08 million barrel per day in July for the first time since the 2003 US led invasion, 115,000 barrels more than the previous month. Iraq for a second month outpaced Iran whose output fell by 173,000 barrels.
Shipments from Iran have declined by 1.2 million barrels a day or 52 percent since the sanctions banning the purchase, transport, financing and insuring of Iranian crude took effect July 1st 2012. It is estimated that Iran is exporting 1.1 million barrel per day of oil down from an average of 2.3 million barrel per day in 2011.
Daily production fell by 9.5% in July to 2.86 million barrels, the lowest level since February 1990. The reduction from Iran led to the third monthly decline in OPEC's output, reaching 31.2 million barrel per day in July, versus 31.35 million barrel per day in June. While Crude oil output in Nigeria reached an all time high of 2.4 million barrel per day after security improved in the southern oil producing region, Saudi Arabian crude oil production was cut by 0.3 million barrel per day in July, taking it below 10 million barrel per day.
However, Samba Financial Group forecast in August Macroeconomic Forecast Update 2012 to 2013 that Saudi oil output would fall back by around 1%. The increase in domestic demand over the past decade is such that the Kingdom now consumes roughly a third of what it produces. Moreover, prices would remain volatile but the average for Brent this year should be around USD 105 per barrel. An average price of USD 98 per barrel is expected for 2013.
Source - The Saudi Gazette
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