LONDON (Reuters) – Stocks of crude in top consumer the United States have piled up to a nine-year high — suggesting OPEC may be right to resist consumer calls to supply more oil right now.
If the group keeps pumping at current rates this summer, excess crude stored by industrialised states could drain away and let the Organization of the Petroleum Exporting Countries regain control over prices by the time it meets in September.
Oil has climbed above $70 a barrel from under $50 in January, but the 12 member exporter group says it is providing more than enough crude and is not to blame for a tight U.S. gasoline market that has driven up prices.
Major consumers, led by the International Energy Agency, do not see it that way. Looking to quickening demand in the third quarter, the adviser to 26 energy-consuming countries has urged OPEC for four months running to boost output.
“Why is there this hue and cry? This is their rushed assessment. The crude oil is available from OPEC,” Hossein Kazempour Ardebili, Iran’s OPEC governor told Reuters. “We will act if needed, but so far we don’t see the need.”
OPEC’s immediate goal is to work off crude oil stocks held in the OECD countries that have built to about 34 million barrels above the five-year average. It has already cut 1.7 million barrels per day (bpd) of output since late last year.
“There is a lot of oil on the market, the stocks are very high,” OPEC Secretary-General Abdullah al-Badri said on Thursday. “If we add more oil, it would not go to the refineries — it would go to the stocks.”
Oil prices fell two percent on Wednesday after U.S. crude stocks
In terms of market management, OPEC, which supplies a third of the world’s oil, has its work cut out.
Based on OPEC arithmetic, a decline in inventories should occur during the third quarter if the exporter club continues to pump at current rates of just over 30 million bpd for the next few months.
The OPEC secretariat sees demand for the group’s crude rising about 600,000 bpd in the third quarter to 30.6 million bpd.
“That would imply a modest stock drawdown in the third quarter, which is normally a period of stock build,” said Paul Horsnell of Barclays Capital.
“OPEC may be targeting OECD inventories because that will give them more control over the downside than they had last year.”
The IEA, however, sees strong growth in non-OECD fuel consumption despite high oil prices. As a result, it anticipates a much higher requirement for OPEC’s oil — up to 32.4 million bpd — from July through September.
Explosive oil demand growth led by Asia had forced OPEC to pump nearly full tilt through much of last year. By autumn, a 100 million barrel overhang had developed in OECD fuel stocks.
Still fresh in oil ministers’ minds is the resulting drop in prices last year — to below $60 from nearly $80 — that sparked the OPEC supply curbs.
“The continuation of OPEC crude production at current levels should maintain commercial stocks at comfortable levels,” the group that pumps a third of the world’s oil has said.
“This would avoid a repeat of the overhang of inventories accumulated in the third quarter of last year, which triggered excessive volatility and destabilized the market.”
An OPEC source told Reuters the group would be content if inventories in major consumers declined to within the five-year average.
“If winter proves to be colder than last year, we might need to raise production in September or later,” the source said.
“Everybody on our side is saying it — if the market needs it, we will supply it.”