OEPC ended its meeting without changing any quotas but that should not have been a surprise. Even though OPEC members are producing two million barrels per day more than their posted quotas nobody wants to rock the boat.
OPEC said demand was rising but the market was well supplied. The oil minister from Saudi Arabia, the only minister that really counts, was joyful. "The market is well supplied. It is an ideal situation we are in now. Nobody is complaining. Consumers are happy, producers are happy. Companies are investing. Demand is healthy. Very healthy."
When you put that in context you can see why OPEC is thrilled. They are already cheating on the quotas by more than two million barrels per day and prices are still in the low $80s. Demand is increasing. The IEA, EIA and OPEC all released their monthly reports this week and all projected higher demand for crude both through year-end and for 2011 and 2012.
OPEC should be thrilled. They will be able to cheat another million barrels per day by next summer and still keep up the charade that the quotas are intact.
OPEC is afraid that "officially" raising the quotas to the level they are currently producing will send a message to buyers that oil supply is tightening. That would raise prices. As long as they keep up the quota charade they can "officially" claim there is plenty of excess capacity. It is a win-win for OPEC.
When Ali al-Naimi was asked about the possibility the Federal Reserve would embark on another round of bond purchases and cheapen the dollar he said, "Anything that stimulates growth is good." What he was thinking was "anything that raises the price of oil is good." He followed with, "Currencies change every day. How many times does the dollar go down, and how many times does it go up. So why worry?"
When asked about Saudi's current production he said it was 8.1 mbpd. When asked about Iraq's and Iran's new reserve estimates he said, "Every country is free to say what their reserves are. So whatever they say, that's their reserves." Obviously a politically correct answer that avoided calling them liars. In another conversation a couple days back he was reported as saying "Let them produce it and then we will talk about it" meaning put your oil where your mouth is.
As the OPEC meeting commenced it was announced that China increased their September oil imports by +35% over the same period in 2009 and +15% higher than August levels. They imported 5.67 mbpd and a new record high. That was good news for the OPEC ministers. They expect China to account for 760,000 bpd of the 1.88 mbpd increase in overall demand in 2010 according to the EIA.
At the seminar held by the Stockholm China Alliance last week analysts predicted China's growth spurt will continue for another 10-20 years. A professor at the seminar projects that China will continue to grow by 8% to 10%. China is expected to double its oil consumption well before 2020.
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