Oil producer club OPEC this week estimated that its 12 members pumped an average 29.356 million b/d in February -- 116,000 b/d higher than the 29.24 million b/d estimated by the International Energy Agency and 46,000 b/d more than the Platts estimate of 29.31 million b/d but 134,000 b/d below the US Energy Information Administration's 29.49 million b/d.
The highest estimate of production from the 11 members bound by quotas -- Iraq does not participate in output agreements -- also came from the EIA, which put the figure at 27.04 million b/d. OPEC's own estimate came in at 26.81 million b/d, Platts's at 26.75 million b/d and the IEA's at 26.7 million b/d.
The EIA estimates OPEC-11 overproduction beyond the 24.845 million b/d target at almost 2.2 million b/d. The lowest estimate, from the IEA, puts overproduction at 1.86 million b/d.
Production estimates are meaningless when they are not put into some kind of context, however, and that means taking demand projections into account.
OPEC itself frets in its latest report that its current output exceeds projected demand for its crude in the second quarter -- the lowest demand season -- by some 1.5 million b/d. It sees the call on its crude at just 27.83 million b/d in this crucial period. It's much more optimistic about the second half of the year, however, when it sees the call on its crude at 29.53 million b/d in the third quarter and 29.73 million b/d in the fourth. For the year as a whole, it pegs the call at 28.94 million b/d.
The IEA is much more optimistic. For the year as a whole, it estimates demand for OPEC crude at 29.3 million b/d and, on a quarterly basis, sees the call on OPEC dipping below the 29 million b/d level in the second quarter when it estimates it at 28.9 million b/d.
The 24.845 million b/d OPEC-11 target looks increasingly irrelevant when placed in the context of supply and demand.
In the past, OPEC has dealt with overproduction by legitimizing it. In other words, by raising official quota levels. Yet, despite the steady increase in actual production over the past year, OPEC has simply rubber-stamped time after time the 4.2 million b/d of cuts agreed in late 2008 and which came into effect in January 2009.
Ministers meeting in Vienna on March 17 to review the current accord and examine the outlook for the oil market will be mindful of the continuing uncertainties about the state of the global economic recovery. Some will express concern about overproduction and global oil inventory levels.
But, with international benchmark crude prices trading around the higher end of the $70-$80/barrel range described by Saudi Arabian oil minister Ali Naimi as "ideal," their hands will almost certainly be reaching yet again for the rubber stamp.
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