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Why OPEC Is Worried About The US Congress

Contributed by Daniel J. Graeber of Oilprice.com.

The Organization of Petroleum Exporting Countries in its report for January said the United States in 2013 may post the highest oil production increase among non-member states, rising by 490,000 barrels of oil per day this year to reach an average of 10.4 million bpd.

OPEC said much of the production increase should come from more drilling in the Gulf of Mexico, the oil boom under way in North Dakota that continued to set records, and "healthy growth" of onshore production in Texas. US oil supply in 2013 is expected to increase by nearly 5 percent to 10.44 million bpd, which OPEC said was the highest projected increase for non-member states.

Production from member states Iran, Iraq and Saudi Arabia, meanwhile, declined. Riyadh said recently it wasn't trying to manipulate the commodities market; and given the downbeat assessment of the U.S. economy, it may be congressional leaders that eventually face the ultimate blame for economic woes despite the oil boom.

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For OPEC members, overall crude oil production was down more than 1.5 percent from November figures to settle at 30.37 million bpd in December. The cartel said production fell in Iraq, Iran and Saudi Arabia.  Riyadh had defended allegations it was trying to manipulate commodity markets when it cut its own crude oil production by nearly 5 percent.

The oil-rich kingdom has kept markets stabilized in the past, mostly recently when Libya was shut out of the oil markets by war. But given the increase in production from non-OPEC members, and following reports from Citigroup the kingdom may become a net importer, Riyadh may simply be making room for emerging oil majors like the United States.

Overall, world oil demand for 2013 remains essentially unchanged, according to OPEC. The cartel, however, said it expected a marginal decline of 200,000 bpd compared to 2012 for OPEC crude. The modest adjustments follow estimates from OPEC that the global economy will grow by 0.2 percent to 3.2 percent in 2013. That's unchanged from OPEC's market report in December. China, Japan, and even the Eurozone, are all expected to show some level of growth this year.

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The emergence of the United States as a global oil leader, however, adds virtually nothing to stimulate the nation's economy, according to OPEC. OPEC said its growth expectations for the U.S. economy remained at 2.0 percent, unchanged from December's report. The cartel said U.S. oil consumption, a reflection of economic health, could return to negative territory if congressional leaders are unable to settle ongoing fiscal issues related to the debt ceiling.

The U.S. Treasury Department last year averted a fiscal disaster by taking some measures to ease debt concerns. The cartel said if no solutions are found to the pending financial chaos, however, the U.S. economy may take a hit on its gross domestic product.  Fitch Ratings this week said the U.S. credit rating is in jeopardy should negotiations on the debt ceiling go nowhere. For OPEC, meanwhile, there are fears of "major uncertainty" in the U.S. economy. Cross-posted from Oilprice.com.

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Reader Comments (1)

The oilprice has gone up with several times the rate of inflation say the last decade or so.
And psychologically at least we have got used to that. The producers as well have gor used to it eg for financing Arab spring pay-offs.
It looks here to stay.

Gas is another issue (it is relatively cheap) and will likley take over partly the function of oil. This combined with a slowing worldeconomy reduces demand for oil. EMs (being the growth markets for oil) are still growing but in no way with the percentages we got used to. However with substantially increased consumption so lower growth likley will be compensated somewhat by that.

QE like measures on the other hand will increase prices of all assets so also of commodities like oil. And subsequently make a recovery more difficult. A thing not properly considered by CBs is my impression.

SA will likely keep stabilising the oilprice. Unless there is a regimechange. If so the whole OPEC might fall apart as a consequence of that.

Iran and the US's 'pump baby pump' approach are other determinants. China likley keep buying capacity as well.

Basically the Saudies will have to keep stabilising the price and at a relatively high level this time. Question being how fast the US can continue and Europe especially and others as well start up smaller scale local production or move to Gas. In Europe in particular you probably need alot of economic pressure to speed that up or it will take decades. And of course how well will it work large scale (there is a huge margin between highest and lowest here).
Seen the money they, SA need for pay offs and being incapable to start a real economy they have no other choice. Structural demand might rise if a lot of EMs will be able to adjust their national economies to more consumption.
The rest will be incidents and businesscycles.

QE effect imho nearly priced in probably (and if it stops the drop in price is likley compensated by higher real demand, so less upside from that angle.
January 18, 2013 | Unregistered CommenterRik

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