NEW YORK – As the Organization of Petroleum Exporting Countries struggles to muster the participation of non-member producers in a global crude supply cut while keeping its own members within their quotas, its head of research said he expects global oil consumption to decrease next year for the first time since the 1980s.
While most forecasters expect an increase – albeit a decline in the growth rate – OPEC’s Adnan Shihab-Eldin said the world will use 300,000 barrels, or 0.4 percent, less crude oil a day in the first six months of 2002 than during the same period this year, according to a Reuters report. Meanwhile, the cartel is struggling to keep its own production in check while it seeks cooperation in a cut from non-member producers.
Oil use has risen in every year since at least 1986, according to the International Energy Agency, which advises the top oil-consuming countries. The agency has predicted a 600,000 barrel-a-day rise in 2002 demand. IEA is scheduled to issue its latest forecasts on Wednesday.
Industry analysts viewed the OPEC statement as additional effort on the part of the cartel to rally non-members to join in a global reduction in crude output, Reuters reported. In the fourth quarter of this year, according to Shihab-Eldin, demand will decline by 900,000 barrels a day, or about 1 percent, from a year earlier. The year-on-year decrease will narrow to 50,000 barrels by the third quarter of 2002, he said.
“We're seeing a serious slowdown in the global economy and oversupply on the oil market,” he said.
If OPEC's competitors deliver their 500,000 barrels a day in cuts, the group will lower its quotas by three times as much, ministers said after meeting in Vienna last month. So far, Russia, the top independent producer, has said it will trim exports by 150,000 barrels a day, while Mexico has pledged 100,000. Analysts expect Norway, which has promised between 100,000 and 200,000 barrels, to settle on 150,000. OPEC expects Oman to offer a daily reduction of 40,000 barrels.
“Once Norway decides, we’ll be in a position to say whether [non-members] are reaching the target,” Shihab-Eldin told Reuters. “If the target of 500,000 barrels a day is reached, we may be in a position to go ahead with the OPEC cut.”
Norway's oil minister, Einar Steensnaes, said last week his country would decide the scope and timing of its supply reduction by Christmas.
Non-OPEC oil production didn't trouble OPEC for most of the past decade because it rose more slowly than global demand. That will change this year and next as independent production outstrips demand increases, according to IEA forecasts.
OPEC is concerned that competitors may not curtail supplies for long enough, Shihab-Eldin said. Russian oil companies have said they will review their pledge to cut after three months.
“The duration of cuts is as important as volume,” he said. “Cuts should be extended into the second quarter of next year.”
Oil traders have said OPEC's insistence on a six-month duration will delay the final cut deal. OPEC Secretary-General Ali Rodriguez on Sunday expressed optimism that non-OPEC producers will align with OPEC on output cuts but that the cartel would have to reanalyze the problem if they cannot strike an agreement.
``We are very optimistic of the possibility of arriving at a final agreement,” Rodriguez told Reuters. “I believe this week we will arrive at some concrete results. If the results are below our proposal we will have to reanalyze the problem,” he said, adding that OPEC is seeking commitments by December 15.
While OPEC seeks to shore up commitments from non-members, it continues to struggle with compliance issues among its membership. According to a report released by Platts, while OPEC nations reduced output by 90,000 barrels per day between October and November, they continue to exceed their own output quotas by substantial margins.
“Even as OPEC is looking at the possibility of an even tighter quota after the first of the year, it still has not managed to reduce its production to even the 23.201 [million barrel per day] ceiling that has been in effect for the last three months,” said John Kingston, Global Director of Oil for Platts. “Current production exceeds that quota by almost 800,000 [barrels per day]. To reach the projected post-Jan. 1 quota, output would need to be reduced by 2.3 [million barrels per day]. That is a tall order. The best OPEC can probably hope for now is an upturn in demand to ease the pressure on it to reduce output.”
