John Kemp, Reuters
OPEC coordinates the policies of its members by giving each of them a production allocation rather than limiting how much they can export.
OPEC agreements have been specified in terms of output rather than exports since the first allocations were agreed in March 1982.
Quotas, as the production allocations are informally known, apply to crude oil but not to condensates or other natural gas liquids.
The system originally made sense but now appears increasingly outdated because of the rising production of NGL and the growing oil consumption within OPEC countries themselves.
Between 1980 and 2016, OPEC’s crude production increased by 31% from 25.4 MMbbl/d to 33.3 MMbbl/d. But OPEC’s output of NGL sextupled from 1.0 MMbbl/d to 5.8 MMbbl/d over the same period. And OPEC’s internal oil consumption more than tripled from 2.6 MMbbl/d in 1980 to 9.0 MMbbl/d in 2016.
In fact, OPEC’s own members have reported some of the fastest growth in oil consumption over the last four decades owing to population expansion and increasing prosperity.
OPEC’s share of world oil demand has climbed from just 1.8% in 1973 and 4.1% in 1980 to peak at 9.9% in 2015 before edging down to 9.5% in 2016.
OPEC’s internal demand has risen from 18% of its crude oil production in 1982 to as much as 28% in 2016.
At the same time, some OPEC members have invested heavily in refineries and petrochemical plants to capture more value-added from their exports.
OPEC’s refining capacity has grown from 5.3 MMbbl/d in 1980 to 11.8 MMbbl/d in 2016, according to the organization’s data.
The result of these changes is that crude production is less and less relevant to the volume and composition of the crude and refined products that OPEC exports to the rest of the world.
Exports, net of any imports, rather than crude production, are what matters for the world supply-demand balance and global oil inventories.
There is a range of other problems when it comes to analyzing OPEC production data.
OPEC’s internal consumption has a strong seasonal element. Saudi Arabia and Iraq burn large volumes of crude and fuel oil in the summer to meet electricity and air-conditioning demand.
So the same level of wellhead production can be associated with very different levels of exports and volumes of oil supplied to the market depending on the time of year.
Conversely, the same level of exports can be associated with very different levels of output, depending on refinery intake and the amount of crude and fuel oil burned in domestic power plants.
Saudi Arabia has been building gas-fired power plants to reduce combustion of crude and fuel oil for electricity generation.
While the policy is sensible, it has led to a significant shift in the relationship between production and exports and become an additional source of uncertainty.
Adding to the confusion, wellhead production is known only to the countries concerned, cannot be independently verified and is reported with a long delay.
A host of commercial tanker-tracking services have been launched in response, estimating export volumes in real time based on information broadcast by shipboard automatic identification systems (AIS).
Like other commercial ships, oil tankers must be fitted with AIS equipment that continuously broadcasts critical safety data, including the vessel’s position, speed, heading, destination, cargo, dimensions and draught. Cross-checked with data from other sources, including port authorities and bills of lading, the AIS data can be modeled to estimate the volume of crude and other products being exported.
Thomson Reuters has its own ship-tracking service, but oil flows are also estimated by standalone cargo-tracking companies including Kpler. As with any model, the estimates are sensitive to the assumptions made to convert the AIS data into export volumes.
But AIS data is available in real time so many analysts rely on export estimates rather than wait for government production figures to track the volume of oil OPEC is supplying.
The result has been confusion as analysts and traders struggle to reconcile government data on production and exports with commercial estimates of exports based on ship tracking.
Ultimately, analysts and traders care about the volume and composition of crude and refined products being supplied to the market by OPEC members, rather than the amount produced at the wellhead. But OPEC’s current agreement focuses on wellhead output, which is neither verifiable nor particularly relevant, and leaves the market trying to figure out how it will translate into oil supply and inventories.
In the future, OPEC members might want to consider an agreement that focuses on exports, and excludes internal consumption, as simpler and more transparent.
2023-12-11 - Hess Corp.'s dividend will be payable Dec. 29 to shareholders of record by Dec. 18
2024-01-01 - SM Energy’s $0.18 per share dividend will be payable on Feb. 5, 2024, to stockholders on record by Jan. 19, 2024.
2023-12-15 - APA Corp.’s dividend is payable on Feb. 22, 2024 to stockholders on record by Jan. 22, 2024.
2024-01-08 - Enterprise Products Partners’ distribution will be paid Feb. 14 to common unitholders of record by Jan. 31.
2024-01-03 - Williams intends to use the net proceeds of the offering for corporate purposes including repayment of near- term debt maturities.