Oil market to remain tight as demand is lacklustre: GRC

DUBAI —The oil market will remain tight, since the inventory build up has not translated into a significant increase in demand cover during non-existent excess production capacity of marketable crude. Prices will stay in the high $50s, unless there is a major slowdown in economic growth in the consuming countries, according to a report by the Gulf Research Center's (GRC) Oil Report - Second Quarter (Q2) 2005.

By A Staff Reporter

  • Follow us on
  • google-news
  • whatsapp
  • telegram

Published: Thu 18 Aug 2005, 10:30 AM

Last updated: Thu 2 Apr 2015, 4:15 PM

This year since June end, the oil prices reached new records. The Q2 Opec basket price averaged at $49.40/b, $5.21/b higher than its first quarter (Q1) average, and $13.41/b higher than its 2004 average. Brent crude averaged $51.92/b, $4.09/b higher than its Q1 average, and higher than last year's average by $13.44/b. WTI averaged at $53.14/b, $3.26/b higher than its Q1 average by $3.26/b, and higher than its 2004 average by $11.69/b. When Opec met in June and decided to increase the production ceiling, it was clear that it was a symbolic move. Traders realised that the increase would not translate into actual increase in production, but only legitimise several Opec members' over quota production.

In Q2, OPEC's crude oil production increased by 492,000 b/d, slightly higher than its Q4 in 2004 when it increased production to its limits. OPEC crude oil production increased from 29.51 mb/d in Q1 to more than 30 mb/d in Q2. The increase came from Saudi Arabia (233,000 b/d), Nigeria (92,000 b/d), Iran (57,000 b/d), Kuwait (73,000 b/d), Algeria (23,000 b/d), the UAE (21,000 b/d), and Libya (20,000 b/d). Venezuela's and Indonesia's production declined by 63,000 b/d and 7,000 b/d respectively. As production and oil prices increased in Q2 of 2005, oil export revenues of the AGCC's six members increased from Q1's figures of $57.8 billion to $63.7 billion, of which Saudi Arabia's share was $32.4 billion.

According the GRC report, high oil prices are not the result of "OPEC market power", "irrational exuberance", "speculative bubble", or even "peak oil". A result of market fundamentals, they have culminated from 25 years of market inefficiencies and intervention. This includes, wars in the Middle East and US sanctions on oil producing countries, which prohibited international oil companies from expanding capacity in the latter.

As oil companies venture deeper and deeper into the Gulf, hurricanes will have an increasing influence on oil prices during summer. Evacuation, in anticipation of a hurricane or a tropical storm, reduces production. Deliveries are delayed as tankers stay away from the affected region. Regardless of the hurricane season, market fundamentals support prices in the high $50s. Since most of the records were set in the late summer, GRC forecasts a likelihood of more records in the third quarter of 2005.

More news from