For the 12 members of the oil producers’ group Opec, 2011 was a record year with its basket of prices averaging $107.47 a barrel. This is up almost 40 per cent on 2010. Daily prices peaked on 11 April at $120.91 a barrel. As civil unrest spread through parts of the Middle East and North Africa in February, prices remained above $100 a barrel, only briefly dropping below for a single day, dipping to $99.71 a barrel.
Add to this record high output levels for crude oil and natural gas liquids and it quickly becomes clear that 2011 was the best year ever for Opec revenues. Production now stands at more than 30 million barrels a day. Nearly all other benchmarks, apart from the US’ West Texas Intermediate (WTI) followed the trend, setting new record averages and in most cases it was well above $100 a barrel. This is on the backdrop of slowing demand growth and weak economic sentiment.
However, from an oil market perspective, perhaps the most significant fallout from the Arab Spring was the loss of an estimated 450 million barrels of light sweet crude oil from Libya. Opec was slow to react and failed to reach a decision on how to cope with the loss of almost 1.6 million b/d of production at its meeting in Vienna in June. With no consensus reached, members with spare production capacity such as Saudi Arabia, the UAE and Kuwait, raised production, although at some cost to the group’s credibility as a cartel.
The pressure on Middle East and North African governments to maintain such high oil prices to balance budgets and fund expansive social programmes will remain in 2012.
As Libyan output returns to pre-war levels faster than originally anticipated, room will have to be made elsewhere in Opec if the group is to sustain production at 30 million b/d. The newly appointed oil minister Abdelrahim bin Yezza says Libya could reach pre-war levels by the middle of the year and already has plans to produce between 2 and 2.2 million b/d in three to five years. The US’ Energy Information Administration (EIA) expects Opec’s surplus production capacity to increase to 4.1 million b/d by the first quarter of 2012.
Analysts at the UK’s Barclays Capital note that “a more precarious economic backdrop and weaker fourth quarter data – particularly for OECD Europe – curb oil demand projections for 2011 and 2012 by around 0.2 million b/d”.
The investment bank expects global oil demand to average 89 million b/d by 2011, a rise of 0.7 million b/d on 2010, before increasing again by 1.3 million b/d in 2012 to reach 90.3 million b/d.
Barclays is not alone among financial institutions in forecasting this year’s prices will remain largely in line with 2011. However, the combination of a fragile global economy, rebounding supply and a weakened Opec suggests prices could fall. Geopolitical concerns however, such as the increased sabre-rattling between Iran and the US over the Straits of Hormuz have already spooked oil traders, pushing up crude prices. European benchmark Brent futures for February traded up $1.55 to $108.93 a barrel on the London-based ICE Futures Europe exchange on 3 January.