The Organisation of Petroleum Exporting Countries signalled a significant tightening of oil markets towards the end of this year, warning on Wednesday it would have to pump close to its maximum capacity next winter to meet rising demand from China against the backdrop of slowing Russian production.
The cartel said it would have to supply at least 30.1m barrels a day in the fourth quarter of the year to balance the market, an increase of 630,000 b/d from its previous estimate in January and 1.1m b/d up from the December figure. The International Energy Agency forecasts Opec’s capacity will be 31.5m b/d by mid-2005.
Opec pumped at capacity last autumn as it tried to catch up with a big increase in demand. But the sharp production increase reduced spare capacity to a 30-year low, helping push oil prices to a nominal record of more than $55 a barrel last October.
The increasing reliance on Opec will make the market more vulnerable to political shocks in the Middle East, analysts said. Oil prices briefly surged more than $1 on Wednesday amid conflicting reports of an explosion in Iran’s Bushehr province, where Tehran is building a nuclear reactor. “The cushion to confront an unexpected shock will be very limited,” said Antonio Merino, chief economist of Repsol YPF.
In spite of raising its forecast for demand, Opec is leaning towards a cut in production at its March meeting, to avoid an increase in oil stocks during the second quarter. Opec increased its forecast for global demand by 80,000 b/d for 2005 and forecast a further 13,000 b/d fall in non-Opec supply, largely due to a slowdown in Russia production.
