OPEC Cuts Again

Jim Brown
 
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OPEC lowered its demand estimates for the rest of 2011 and 2012 because of the growing problem of austerity induced weakness in Europe.

OPEC lower their demand growth estimates for 2011 to an increase of +1.06 million barrels per day. That is a whopping -150,000 bpd less than they predicted just last month. The growth estimate for 2012 was lowered by -40,000 to an increase of 1.27 mbpd.

They warned if the U.S. economy did not grow the demand for next year could be reduced by another 200,000 barrels.

OPEC said the weakness in Europe and the U.S. was mitigating some of the expected production shortfalls for the rest of Q3 and into Q4. The last estimate was for a shortfall of 688,000 bpd in Q3 as a result of the Libyan production halt. The shortfall was forcing a drawdown of inventories in Europe. They did not give a current number other than "worries over the supply shortage appear to be easing."

The IEA will release their monthly demand expectations on Tuesday.

Libya appears to have sold their first tanker of oil in the post Gaddafi environment. The 540,000 barrel tanker Newlead Arva, signaled it was 30 miles from the Libyan port of Mellitah. The first loading of Libyan oil is expected to be between Sept 16th and 25th. The tanker is on long term charter to the Vitol Group. They are one of the largest oil traders in the world.

Libyan Oil Attack

Libyan officials claim production has resumed on a limited basis from some fields. However, as I warned over the last several weeks until Gaddafi is captured there is always the risk of sabotage at the oil facilities aimed at depriving the rebels of revenue from the oil.

Over the weekend two groups of Gaddafi loyalists attacked the coastal oil facility of Ras Lanuf, about 380 miles southeast of Tripoli. A group of 15 employees set fire to the facility. Officials say five were killed and the rest arrested.

In a separate attack the port came under attack by armed men in up to 40 vehicles. Fifteen of those attackers were also killed.

In a press release from the Gaddafi loyalists they claimed they killed 15 guards at the oil facility.

There was no estimate of damages to the port.

I would not expect any quick increase in crude production. Crude prices rebounded sharply intraday as the news was disseminated. Brent rose to $113.75 before giving back a dollar at the close. WTI rose to $89 and closed at $88.

Tropical storm Nate made landfall in Mexico and evaporated. Maria was downgraded to a tropical storm with 50 mph winds and the storm track is now headed back to the northeast and away from land. There are no new threats on the radar.

The Greek default problem continues to roil the markets and oil prices are likely to remain volatile until the situation is settled. However, at the current price points the energy producers are still making a ton of money and we should begin to see some earnings estimates undated soon. This should produce an upward bias for the oil sector.

Jim Brown

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