Oil cartel OPEC said on Wednesday that global oil stocks were more comfortably supplied than current high prices suggest, and that it would need to tackle a surplus looming in the second quarter.
OPEC forecast demand for its oil at 24.72 million barrels per day in the second quarter, some three million bpd below its December production of 27.735 million bpd, the cartel’s Secretariat said in its monthly oil market report.
“Projections indicate a significant oversupply building in the second and third quarters that cannot be ignored and needs to be acted upon in a timely fashion. Otherwise, the considerable fall in prices will be inevitable,” the report said.
OPEC ministers use the Secretariat’s estimate of supply and demand to advise them on production policy. This is the last report before OPEC meets on February 10 in Algiers to set policy for the second quarter.
Supply usually outstrips demand in the second quarter when demand eases after the northern hemisphere winter, allowing inventories to rebuild. U.S. crude inventories are at their lowest level since 1975, pushing prices to post-Iraq war highs.
But some OPEC ministers are worried this year’s second quarter surplus will be much larger than normal, and that they may have to cut production to avoid a price crash.
The projected three million bpd stockbuild, assuming OPEC output at December levels, is 1.5 million bpd more than the 1.5 million bpd build that OPEC’s chief economist has said is normal for the period.
The International Energy Agency -- adviser to 26 industrialised nations on energy policy -- last week forecast an even bigger second quarter build of 4.6 million bpd.
“They face an issue in the second quarter and they do need to take some action. The issue is that with prices at these levels it makes it difficult to cut,” said David Stedman, analyst at Daiwa Securities in London.
OPEC producer Iran said on Wednesday that the cartel was unlikely to agree a supply cut at its February meeting. The cartel meets again at the end of March.
“I do not see there could be consensus in February to lower the ceiling,” Iran’s OPEC Governor Hossein Kazempour Ardebili told Reuters. “At this level of price, it is difficult to convince all member countries to cut.”
Oil prices have risen around $8, or 30 percent since OPEC’s September decision to cut production by 900,000 bpd, or 3.5 percent. U.S. crude on Tuesday topped $36 a barrel for the first time since the Iraq war.
OPEC’s report argued that oil markets were more comfortably supplied than prices would suggest.
The report estimated that global oil stocks showed a contra-seasonal stockbuild during the fourth quarter of 700,000 barrels a day.
It said indications were that stocks of oil in transit also were rising.
“A consensus seems to be emerging among various sources that despite the market’s reacting as if there was an oil shortage, the global oil balance gives a strong indication that the market is well supplied,” the report said.
Total OPEC production rose 175,000 bpd in December, with increases spread fairly evenly across the group. The 10 OPEC members with quotas, excluding Iraq, were 1.29 million bpd over a 24.5 million bpd ceiling in place since November 1.
“A call for strict adherence to quotas looks to be in the offing,” said Daiwa’s Stedman.