A senior official from the International Energy Agency said Friday he was
pleased that OPEC member countries were reacting fast enough to current high
prices by boosting production unofficially.
But Richard Jones, deputy director of the industrialized world's energy
watchdog, also suggested that the recent fall in OECD oil inventories had less
to do with increased demand than to the flattening of the forward curve.
"OPEC is moving fast enough, I think they are," Jones told reporters in
OPEC's current 24.845 million b/d output target, which does not cover
quota-exempt Iraq, has been in place since the beginning of 2009 but actual
production has been well above this level over the entire period.
Jones noted that the group's compliance with its nominal limits had
slipped from around 80% when oil prices were under $40/barrel in early 2009 to
the current level of closer to 50%.
"They are not changing their official targets, but you see a decline in
the adherence to the targets," he said.
"At the trough, which would have been early 2009, they had very high
compliance rates, and it has been declining ever since," said Jones.
"I think it is a reflection of the demand that OPEC is seeing, and some
producers are taking advantage of opportunities in the market to satisfy
demand. If they didn't, then the market would be tighter and prices would be
going up," he said.
Jones said he thought OPEC was keen to avoid a repeat of 2008, when oil
prices soared to more than $150/b.
"I think they know it wasn't in their interest to see prices get that
high," he said.
Jones said the IEA did not see any "fundamental shortage in the market."
"We know that some of the storage, the stocks are coming down. But stocks
are still very high. The market is well-supplied, we don't see a shift in the
fundamentals," he said.
Indeed, he added, "I don't see that there is a fundamental reason to
expect demand to surge in 2011."
The IEA reported Friday in its monthly oil market report that
industry-held oil stocks in OECD countries had fallen by an estimated 42.8
million barrels in September to end the month at 2.75 billion barrels.
Oil held in short-term floating storage fell to 59 million barrels at the
end of October, down from 76 million barrels a month earlier, with the fall
split between Middle Eastern crude and refined products in Europe and Africa,
the IEA said.
"People are interpreting the fall in stocks as a surge in demand. I'm not
sure that's the case. It may be that people that held those stocks just feel
that now is the time to liquidate," Jones said.
"I really feel that they are testing the margins. I know stocks have come
down. But why did stocks come down. The forward curve is flattening so all of
a sudden it doesn't make sense to hold stocks. It's the low interest rates
that have allowed stocks to be held and now the curve is getting flat enough
that even with low interest rates it no longer makes sense to hold the
--Thomas Hogue, email@example.com
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