Middle East
Overall, production is stable around 29 million b/d, but marginally higher, as reported, as some producers take advantage of higher prices to add more crude to global supply. Spare capacity remains around 5.5 million b/d. A couple weeks ago, the risk to oil prices seemed to be to the upside, neglecting seasonal effects, with some bets on ‘new highs’ by Memorial Day. Arguing against such a spike (a) stronger dollar as/if Europe) continues to deteriorate, (b) demand destruction above $90-100/bbl, (c) progressing volumes from Iraq (see above). But it’s a close call – back to back cold winters (Q1 and Q4 in both US and Europe) may be driving above-normal consumption trends. And the outlook for US GOM production slips daily. My bet is on a strong 1H, as suppliers struggle to overcome wintry stock draws, then seasonally strong demand from China, and offset by more normal (?) weather in 2H. However, as noted, the fear of a spike, driven largely by relatively light project development over the 2006-9 period, has heightened since summer 2010, and could continue into 2012. We highlighted, last month, reports of the extent of consumer energy subsidies, along with the potential effect on both consumption and carbon emissions, from their removal, over time. While the analysis, by the International Energy Agency (IEA) only considered consumer (not producer) subsidies, the opportunity is significant. An example of the ‘prize’ is Iran, where sanctions have led to a removal of significant subsidies on electricity, natural gas, and gasoline. In only a few months, natural gas consumption is 6% lower in the country, and has fallen 15% in Teheran, the capital. Once again, proving that the more you subsidize, the more you ‘get/waste,’ etc.