A bitter pill

Author Toby Shelley

Today’s Monthly Oil Market Report suggests a grim short-term prognosis for those in the Opec ward who lack the puritanical determination that is strengthened by financial reserves.

Today’s Monthly Oil Market Report suggests a grim short-term prognosis for those in the Opec ward who lack the puritanical determination that is strengthened by financial reserves.

Vital indicators are still flashing alerts: no significant pick-up in forecast demand growth; a dip in forecast non-Opec production this year dwarfed by an upward revision of the 2014 figure; and the call on Opec crude revised down again.

The “kill or cure” prescription for ailing prices and vulnerable market share written out by the richer Arab Mideast Gulf producers in Vienna in November is proving to be bitter medicine indeed.

Iran, Venezuela and Algeria have already called for a second opinion. And even Kuwait has admitted that it’s having to grit its teeth, with oil minister Ali al-Omair conceding that prices have fallen further than expected.

But Riyadh and the UAE are steadfast — the treatment only works if you finish the course. UAE oil minister Suhail Mohamed Faraj al-Mazrouei this week ruled out an emergency Opec meeting and Saudi crown prince Salman bin Abdel-Aziz underwrote the diagnostic skills of oil minister Ali Naimi.

So, in the drug dependency sick room, the temptation to alleviate the pain of the cure with one little fix is winning out. According to figures supplied by member countries and published in the MOMR, collective Opec output in December was 500,000 b/d up on November (although Venezuela’s data department is so comatose it has not supplied numbers since the second quarter of last year).

If Libya’s production had not dived as its domestic conflict flared up, the rise would have been over 700,000 b/d. Iraq indulged itself with a 347,000 b/d increase, in part thanks to its deal with Kurdistan Regional Government. Nigeria more than made up for November’s logistical problems (but is now suffering from a large overhang in loading programmes). The UAE looks like it has decided to max out with a 154,000 b/d declared increase. And Iran — sanctions or no sanctions — claims a 50,000 b/d rise.

Short term gain — long term pain.

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