Top Countries producing crude oil in 2004 (source EIA )
I added Azerbaijan to the list because if you go to the latest tables then you find that it has crept into the select table of those producing more than 1 mbd, the total list of which is now made up as follows:
May 2009 Top crude oil producing countries (Source EIA )
The ones that have reduced production are in red, and countries that have changed position have the previous rank shown after their name. Overall the production numbers are not that different, globally we’re at some 71.8 mbd as opposed to 72.48 mbd in 2004, and OPEC now produces 30.31 mbd, in contrast with 30.41 mbd back then.
Of course the world is in recession at the moment, and to compensate for the drop in demand, OPEC has cut production. However in the TWIP this week, the EIA has a comment on the strength of that commitment, which is germane to where we are going in terms of oil supply and thereby oil prices.
Bear in mind that the reduction has now been going on since the beginning of the year and that, originally compliance was relatively high. But as the EIA notes, this is transient, and over time production works back up, as indeed it has. (OPEC was reported to produce only 26.23 mbd in January).
OPEC compliance with average production cut requests by month (Source TWIP )
The TWIP suggests that only Saudi Arabia, Kuwait the UAE and QATAR carried the brunt of the production cuts with Saudi Arabia making the deepest sacrifice. But as compliance diminishes it does begin to raise the question as to how much production can be brought back to match increased world demand.
Most of the countries on the list above are producing about as fast as they can, although a quick check on Russian production showed that they produced 9.99 mbd yesterday so perhaps they also have had a little slack that the return to prices above $70 is bringing back to the market (It may also be that the difference comes from NGL ( natural gas liquids from natural gas wells ) which are not counted in the crude numbers in the tables). And yet, to pick two, the UK and Mexico are seeing production steadily decline with little chance of reversal. Looking, for example, at Mexican production, the decline seems to be significant and continuing.
Mexican oil production over the past twelve months (PEMEX )
As a result imports to the United States have fallen to 1.225 mbd in May, and that shortfall from 1.9 mbd as recently as May 2005 gives an indication of how rapidly Mexico is declining. Which raises the question as to where, given further declines, the US and others relying on that oil are going to get the replacement.
The Wicks Report not withstanding, it is unlikely in the short term that this will come from the Canadian oil sands, it takes too long to gear up. Non-OPEC in general is now considered to have peaked in production which brings us back to the few OPEC players that still have some capacity to boost. Of these the one that has made the deepest cut, and thus it the one with potentially the most available is Saudi Arabia.
Bloomberg believes that the current excess production that is being held off the market is around 6.1 mbd. Since this is held by OPEC, then OPEC is going to set the price from now on and
The Saudis are happy with oil in the $70-to-$80 range,” Mueller said. “It’s low enough to stop development of some oil sands and alternative energy sources while not hurting the economy. If prices rose above $75 they would open the spigot.”
Saudi Arabian Oil Minister Ali al-Naimi said on May 23 in Rome that crude oil at $75 a barrel would be healthy for the global economy. The aim will be “keeping it between $70 and $80,” he said. The Kingdom is the world’s biggest oil exporter.
I would be a lot happier with this if I believed that 6 mbd number. I don’t. And we will have to see, as the economy gains in strength, just how much oil will be released to support the growth. It would be nice to believe in Euan Mearn’s optimism but I believe that the estimates are probably at least 2 mbd too high – we’ll just have to wait and see how close we come in the months ahead.