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Today's paper. Last Updated: 02/09/2012

OPEC Output Ceiling Reached

Reuters

VIENNA — OPEC has less room to raise production as global oil use recovers because of Russia's increasing output, said Shokri Ghanem, head of Libya's delegation to the organization.

Organization of the Petroleum Exporting Countries ministers on Wednesday agreed not to change oil output targets they are already exceeding, anticipating that demand will pick up later in the year to mop up extra barrels the producers may pump.

Russia inaugurated the East Siberia-Pacific Ocean pipeline in December, targeting additional exports of as much as 250,000 barrels per day of medium sour crude in the first quarter and up to 600,000 bpd when it completes a pipeline to China in the next two years.

"If it is increasing the production, this means increasing the world supply," Ghanem said Thursday in Vienna, where OPEC met a day earlier.

"Of course, this will cut the share of OPEC to increase its production because they don't want to cut down their production, so we'll end up in some problems," Ghanem said about rising ESPO output.

ESPO crude is putting pressure on prices of waterborne Middle Eastern crude grades sold in Asia because of its lower shipping costs, better quality and shorter delivery times, traders and analysts have said. Saudi Arabia cut Asian oil prices to 14-month lows for April.

Targeting Asian demand growth, OPEC members are mostly supplying customers in the region with full volumes even as they maintain curbs to Europe and the United States. Even so, the market is struggling to absorb the crude, traders have said.

OPEC did not invite non-OPEC producers to its gathering Wednesday, as it has often done for ordinary meetings held in Vienna in March of every year.

In such encounters, OPEC has called on attending ministers from outside the organization, including Russia, to join efforts to curb supplies. But Russia has most times failed to deliver on pledges to cut.

Ghanem's is the first admission by an OPEC minister that ESPO is raising concerns for the group.

Earlier this week, other OPEC ministers including Saudi Arabia's Ali al-Naimi said Russia's rising crude shipments to Asian markets via the Pacific Ocean posed no threat to Middle Eastern producers' position as the largest suppliers to the region.

Soaring oil demand from China and other developing Asian economies will absorb rising production from Russia and Iraq over coming years, Naimi said Tuesday.

But privately, sources familiar with the matter said ministers are concerned about what rising ESPO output means for them and their share of growing Asian markets.

Refiners in China, Japan, South Korea and as far away as the Philippines and Hawaii are processing the new grade, set to become a staple in the region.

"We're not concerned about a blip here and there," Naimi said when asked about ESPO crude exports. "We've got the world's highest reserves, the world's largest production capacity — we can compete with anyone big or small."

Saudi Arabia holds the world's largest proven oil reserves of conventional oil at 264 billion barrels, compared with Russia's 79 billion, according to BP's Statistical Review of World Energy. OPEC's 12 members hold a total of 956 billion barrels, or 76 percent of the world's total.

The ESPO Blend crude accounts for just 0.3 percent of current world oil supply and that proportion is expected to climb to about 0.7 percent by 2012.

Total ESPO shipments of about 7 million barrels in January were equivalent to less than 6 percent of China's imports for the month, which amounted to 125 million barrels.

The ESPO Blend goes via pipeline from producing fields in Eastern Siberia to Skovorodino, where it is sent on railcars to the Pacific port of Kozmino near Vladivostok.




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oil gas OPEC Libya Saudi Arabia



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