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OPEC inaction masks looming supply glut in 2014

By Grant Smith, Bloomberg

December 2, 2013 • Reprints

Even with OPEC forecast to keep its output quota unchanged at a meeting this week, falling oil demand and prospects for increased supply from some member states mean the group’s leader, Saudi Arabia, will have to cut production anyway.

The kingdom and its allies Kuwait, Qatar and the United Arab Emirates will need to produce about 2 million barrels a day less in 2014 to prevent a glut, the Centre for Global Energy Studies predicts. That’s equal to annual revenue of about $80 billion at today’s prices. The 12-nation group meets in Vienna on Dec. 4 and will reaffirm its collective limit of 30 million barrels a day, according to 22 of 24 analysts and traders surveyed by Bloomberg News.

OPEC is already producing above target, even with output disrupted in member states Iraq, Libya and Iran. Demand for the group’s crude will decline by about 900,000 barrels a day in 2014 as the U.S. pumps the most in almost a quarter century, the International Energy Agency says. A glut would lower prices that are averaging more than $100 a barrel for a fourth year, curbing revenue for Persian Gulf nations that on average rely on the sales for about 80% of government revenue.

“Next year OPEC’s going to have to act,” said Seth Kleinman, the head of energy strategy at Citigroup Inc. in London. “There’s a lot of crude that’s coming. Iraq is coming in 2014, there’s no sign of the U.S. stopping, and you have to believe you’re going to see more leakage from Iran. It could be anywhere from 1 million to 2 million barrels a day that the market could be looking for Saudi Arabia” to cut, he said.

Exporting Countries

Brent, the benchmark grade used to price much of the crude produced by the Organization of Petroleum Exporting Countries, averaged $108.55 a barrel this year, the third-highest level in data starting in 1988. Futures traded on the ICE Futures Europe exchange in London will average $105 in 2014, according to the median of 30 analyst estimates compiled by Bloomberg.

Prices rose 62 cents, or 0.6%, to $110.31 a barrel as of 3:53 p.m. in London. Goldman Sachs Group Inc. says Brent will drop to $108 in three months and $105 in 12 months. Hedge funds and other speculators cut their net-long position, or bets on higher prices, to the lowest this year last month, bourse data show.

OPEC exceeded its production target ever since it was set two years ago. The group pumped 30.01 million barrels a day in November, with Saudi Arabia supplying about 33% of the total, according to a monthly Bloomberg survey. OPEC hasn’t published individual national allocations since the last time it formally announced an output cut in December 2008.

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oil 6597Bloomberg 5254Oil 4708energy 3807commodities 3439Energies 2981International Monetary Fund 1712Organization of Petroleum-Exporting Countries 1337OPEC 1138Goldman Sachs Group Inc. 864Citigroup Inc. 603Bank of America Corp. 596Department of Energy 546International Energy Agency 452oil demand 436Deutsche Bank AG 426oil price 352ICE Futures Europe 251Societe Generale SA 224oil exports 212Prices 193shale oil 91Forecast 82oil output 81Ali al-Naimi 43Energy Aspects Ltd. 34Amrita Sen 33Francisco Blanch 29Oil markets 15Abdul Kareem al-Luaibi 15Mike Wittner 14JBC Energy GmbH 11Seth Kleinman 11Quotas 5Centre for Global Energy Studies 5oil research 4Torbjoern Kjus 3DnB 2Hussain Al-Shahristani 2Leo Drollas 2CGES 1minimum average oil price 1Ahmad Zaki Yamani 1Jose Maria de Vasconcelos 1

Free Newsletter Modern Trader Follow

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