Norway was in the unusual position of being the main culprit behind the week’s price rise on the supply side, as a strike by oil workers raised fears about the country’s 3.2 million barrels a day (b/d) of exports, although only an insignificant portion of production was shut in and Oslo used emergency powers to end the stand-off on 26 October. Unions in Nigeria are threatening to stage another of their periodic strikes, while in Iraq, attacks against the country’s oil infrastructure continued on 25 October with a blast on a pipeline supplying the Baiji refinery.
On the demand side, US stock data released on 27 October showed the sixth consecutive weekly draw in distillate fuel stocks – which include heating oil – of 2 per cent to 116.6 million barrels. Crude inventories registered a build of 1.4 per cent to 283.4 million barrels, on the back of imports averaging 10.3 million b/d.
During a relatively quiet week for market-moving events, attention was focused on the words of oil market personalities, assembled in London on 26-27 October for the annual Oil & Money conference. The bears stayed in the woods. Producers, consumers and analysts were virtually unanimous in predicting strong oil prices for some time to come.
‘It seems that on the basis of the recent track record and the supply/demand balance, oil prices have a support level of around $30 a barrel for at least the medium term,’ said Lord Browne, chief executive of BP
. Sharing a platform, OPEC’s head of research Adnan Shihab-Eldin and executive director of the International Energy Agency (IEA) Claude Mandil were at one in blaming soaring demand growth and a lack of productive exploration activity for such a bullish outlook.
‘Prices just keep on climbing no matter what OPEC does, mainly because of unrelenting demand growth in China and the US and tightness in the refinery system, which is running at more than 90 per cent of capacity in the US and around 90 per cent in Asia, compared with a norm closer to 70 per cent,’ said Shihab-Eldin. ‘OPEC put an extra 2 million b/d into the market in the second and third quarters, so naturally the capacity cushion has shrunk, which is in turn raising fears of a lack of leeway in the system.’ He said OPEC was working to bring spare capacity back up to 10-15 per cent of output.
Both he and Mandil – who launched the IEA’s 2004 World Energy Outlook at the conference – agreed that a threat to longer-term supplies was posed not by a lack of investment per se but by a lack of exploration in the world’s most prolific regions.
For a detailed briefing on the IEA’s latest World Energy Outlook, see next week’s MEED.