World oil market and OPEC chanllenges

By Peyman Naoubi.

 

TEHRAN Nov 08 (Shana)–Under an established pattern in the oil market, world oil demand shrinks during the first three months of each year in comparison to the fourth quarter of a year earlier. Therefore, oil demand is expected to edge lower in the first quarter of 2015 against the fourth quarter of 2014; hence, there is the possibility of further falling of oil prices in early 2015.

Generally, two groups of factors influence oil prices including fundamental and non-fundamental factors. It should be noticed that this kind of classification is confined to oil market developments and has nothing to do with other commodities.

Oil prices

Fundamental factors include supply and demand equilibrium and disequilibrium, seasonal changes, weather conditions, petrochemical feed-stock, maintenance and refining problems, economic growth or slowdown, the level of stockpiles, shipping and news relating to oil market.Non-fundamental factors are things like speculation, the role of financial institutions, political events, foreign exchange rates, the stock market of other commodities, the price of other oil carriers, strikes, war and non-oil developments which originate from outside of the oil industry that can impact oil prices.Current developments in the oil market show that a combination of fundamental and non-fundamental factors has been the driving force behind recent falling oil prices which have disturbed the normal function of the market.

A survey by International Energy Agency (IEA) shows that between 2013 and 2015, demand and supply pattern has followed a general trend under which during the first quarter of each year world oil demand comes down against the fourth quarter of a year earlier and then gradually reaches its yearly climax through the second to fourth quarter of the same year.

Demand

Based on IEA data, during the third quarter of 2013, world oil demand and supply stood respectively at 92.5 and 91.71 million barrels per day, implying oil market faced 790 thousand barrels per day shortage which led to steady prices at 110 dollars per barrel.Meanwhile some analysts believe that disequilibrium between oil supply and demand during the third quarter of 2014 stems from the behavior of OPEC members in the market. But taking a look at OPEC and Non-OPEC oil production figures shows that rising production by Non-OPEC oil producing countries is the main reason behind falling prices, not OPEC members’ behavior.
Data released by IEA also show that world oil demand during the first three months of 2012 through the end of third quarter of 2014 has increased by 3.55 million barrels per day while world oil supply has climbed by 2.42 million barrels per day, has reached 93.22 million barrels per day.

Supply

IEA’s data show that OPEC’s daily oil exports edged down by 860 thousand barrels per day over the mentioned period and stood at 30.45 mb/d, mainly due to Iran’s falling share in the market after imposing sanctions against the country.Meanwhile during the same period, Non-OPEC supply rose by 3.28 mb/d standing at 62.77 mb/d.

As the figures show, rising supply by non-OPEC countries over the recent years not only has filled the gap resulting from shrinking oil supply by OPEC but it has turned to one of main fundamental factors affecting oil prices and pushing them downward due to 240 thousand barrels of surplus they have created in the market.With regard to IEA’s forecast on rising world oil demand to 93.51 mb/d in fourth quarter of 2014, world oil market will face 290 thousand barrels of shortage in the fourth quarter of 2014 if supply to remain at current level of 93.22 mb/d.

In these circumstances, it could be predicted that oil prices will remain stable or may rise just a little due to the role fundamental and non-fundamental factors can play in the market.

OPEC Supply

As noted at the beginning, based on a routine pattern which takes place every year, world oil demand is expected to decline in the first quarter of 2015, so if OPEC decides do nothing vis-à-vis surplus in the market, falling prices is probable.According to IEA data, world oil demand is estimated to fall to 92.56 mb/d in the first quarter of 2015, so if world oil supply to remain steady at existing level of 93.22 million barrels per day, the market will face 660 thousand barrels per day surplus, three times more than the level of surplus in third quarter of 2014.

Meanwhile it is expected the trend of falling prices in the first quarter of 2015 not to be continued afterwards when world oil demand will start rising normally in the subsequent months.If IEA does not change its estimates, world oil demand will reach 92.71, 94.18 and 94.64 mb/d respectively in the second, third and fourth quarters of next year which means the market will face ./96 and 1.42 million barrels of oil per day shortage during the third and fourth quarters of next year.

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