Warning from Opec over US oil production

Threat of a reduction in investment by Opec members that would see 'consumers lose' follows a prediction that Saudi Arabia's oil output will be surpassed.

Opec warned of a reduction in investment by its members that will hit oil consumers. Charlie Riedel / AP Photo

The head of Opec warned yesterday that if predictions that the United States will surpass Saudi Arabia as the world's biggest oil producer continue, the result will be a reduction in investment by his members that will hit oil consumers.

"If this message keeps coming, there will be no investment" from Opec members, said Abdalla El Badri, Opec's secretary general, adding that "consumers will lose".

Mr El Badri's rebuke came less than 24 hours after a prediction by the International Energy Agency (IEA), the industrialised nations' adviser on energy policy, that US oil production will exceed that of Saudi Arabia within five years.

The claim swept around the world on Monday, rattling oil markets. North Sea Brent crude fell by US$1 to about $108 a barrel, while the American benchmark West Texas Intermediate dropped 0.63 per cent to $85 a barrel yesterday.

Speaking at a panel discussion also attended by the IEA executive director Maria van der Hoeven, Mr El Badri did, however, confirm existing Opec spending plans.

The group's members plan to invest about $270bn (Dh991.73bn) into oil production in the five years leading up to 2016, adding 5 million barrels per day (bpd) in output capacity. Abu Dhabi is taking part in this effort to lift capacity, aiming to boost its maximum pumping volumes from the current 2.8 million bpd to 3.5 million by 2017.

The IEA predicted on Monday that the boom in unconventional oil and gas will help the US to overtake Saudi Arabia's production, currently about 9.7 million bpd. The US is also forecast to overtake Russia as the biggest producer of natural gas within the same timeframe.

Mr El Badri also agreed with Ms van der Hoeven that the market is currently well supplied, a notion that ties in with the IEA view of a supply-demand balance favouring consumers. "There is no shortage anywhere in the world," said Mr El Badri.

This message was driven home in the IEA's latest monthly report, in which the agency reduced its forecast for crude demand in the final quarter of this year by almost 300,000 bpd, and also lowered its forecast for demand growth next year by 60,000 bpd.

Producers outside Opec added 840,000 bpd to their output last month, increasing production to 53.4 million bpd, while Opec output dipped slightly.

A resurgence of Iranian exports, previously curbed by international sanctions aimed at crippling Iran's main source of revenue, rebounded strongly, adding to global supplies.

The IEA said Iranian exports jumped by 300,000 bpd to 1.3 million bpd last month, as the sanctions by the US and the European Union over Iran's nuclear programme had not succeeded cutting off crude flows to Asia.

"China and South Korea appear to account for the lion's share of the increase in Iranian imports," said the agency.

Saudi Arabia reduced its output in the past months, as waning demand and a gloomy outlook for the world economy threatened to undermine crude prices.

Experts believe that Mr El Badri's threat over stalling Opec investment in production capacity should not concern the market in the near term.

The oil market is expected to be in a surplus for the next three to four years with the economic slowdown, and is only expected to recover after 2020,said Caroline Bain, the senior commodities specialist at the Economist Intelligence Unit in London.

"From the point of view of the Iraqs, Saudis and Kuwaits of the world, there's no point in investing now. We'll wait until the world needs our oil again and we can get a better price," she added. "There's no point in rushing out a lot of oil when the market is in surplus."

The bulge in North American supply means that spare capacity, currently at 2 million barrels per day, could swell to 4 million or 5 million bpd - the largest cushion since at least the 1990s.

Opec nations will decide whether to tweak their capacity expansion based on their economic needs, said Ehsan Ul Haq, the senior market consultant at KBC Energy Economics.

"Iraq needs to expand production in order to spend more on its infrastructure," said Mr Ul Haq. "I don't think that Iraq will spend less on its on its projects, but Saudi Arabia might decide not to go ahead with its plans."