12th March 2010 - Ahead Of Opec Meeting
With the next OPEC meeting just a few days away, there is much talk amongst those both directly and indirectly involved in the oil industry with regards to the possible outcome of this gathering. The tanker industry is no exception to that, as the level of the OPEC crude production, particularly in the Middle East has a major bearing on crude tanker markets. For example, a dramatic fall in the OPEC crude output in the last few months of 2008 was one of the key reasons behind a collapse in tanker freight rates and earnings last year. Although OPEC production has increased by around 1 million b/d from its bottom level in early 2009, it remains well below average levels seen between 2004 and 2008.
At the moment, many industry analysts agree that OPEC members are likely to leave their production targets unchanged. The conditions in the oil industry have not changed much since the cartel's last meeting in December 2009. In terms of oil prices, there is no real impetus for the cartel to increase or cut output quotas due to the relative stability in oil prices seen in recent months. Also, some OPEC members have indicated that the current $70-80/bbl range is "satisfactory", as they argue that this price level is required to maintain investment for the development of new oil fields.
Although WTI crude rose to $82/bbl in recent days, the cartel believes that this is due to the speculation in the futures markets, rather than any fundamental improvement in the supply/demand balance. Global oil inventory levels remain high, with the International Energy Agency in its latest report estimating total industry stocks in OECD countries at 2,703 million bbls in January 2009. At these levels, inventories are 2.6% below their September peak, but still considerably above the five year average for this time of the year.
These bloated industry stock levels have fuelled speculation that compliance rates will be the main issue on the agenda of the upcoming OPEC meeting. However, with oil prices trading within the cartels' acceptable limits and the expectation of a rebound in oil demand that will help to alleviate the inventories overhang, how pressing is the need to tighten the compliance?
