Bloombergand Dow Jonesreported in early August increases in OPEC 10 production from June to July of 130,000 barrels a day (b/d) and 237,000 b/d respectively. According to their estimates, which are based on surveys of traders and oil companies and producers, OPEC in July produced between 1.7 million b/d and 1.8 million b/d above the 21.7 million-b/d quota – the highest level of production since the ceiling was last altered in late December.
Among the OPEC states pressing hardest for an increase is Nigeria. OPEC president Rilwanu Lukman, also Nigeria’s presidential adviser on oil policy, has dismissed reports that the country wants to pull out of OPEC. However, he has also confirmed the country’s hopes of a quota increase.
‘When it is the appropriate time, we are going to present our data, facts, figures and justification for a quota increase,’ he said in Abuja on 1 August. ‘We don’t have any specific date that we are tabling our request. If you don’t want to prejudice your position on this issue, you talk less because every member of OPEC is agitating for a quota increase.’
Analysts say that Algeria has a strong case to demand an increase too. Although the quotas are usually determined by proven reserves, which have increased dramatically in Nigeria but not in Algeria over the past 18 months, Algerian production capacity has grown swiftly. ‘In a long-term environment of demand growth, it’s obvious that more capacity is needed,’ says Ken Miller of the US’ Purvin & Gertz.‘If a country increases its capacity it needs a proportionate adjustment in output – otherwise that country will start to increase anyway, creating an atmosphere of animosity and potential price collapse. I think this is the case for Algeria even more than Nigeria.’
For OPEC, the need for some members to increase their production presents a problem. All members are under pressure from the low output figures and if the organisation raises its pledge but gives all new output to Algeria and Nigeria, other members may start to rebel. Miller says there are doubts about how far production can be increased in any case. ‘We believe there’s lots of competitive crude volume out there as well as softening demand,’ he says. ‘So although market sentiment is that there needs to be more OPEC crude, we think they may need to keep it tight.’
US oil products stock figures released by the government Energy Information Administration on 7 August for the week ending 2 August show an increase in gasoline stocks but a fall in crude stocks in the US, indicating a fall in demand for end-user products. The news indicated a slight fall in demand, leading to a slip in spot prices. Benchmark Brent crude on 7 August was valued at $25.31 barrel, a drop of more than $1 a barrel from the previous week.