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Downstream investments lagging behind considerable efforts in upstream
Posted: 20 June 2005
Immediate and sizeable investments are needed in the refining sector if OPEC’s considerable efforts on the supply side are to be fully effective, according to the OPEC Monthly Oil Market Report for June. Investments, especially in conversion capacity, have persistently lagged behind market requirements, the report noted, even as OPEC Members have repeatedly raised output levels and the acceleration of their production capacity expansion plans in order to meet the strong growth in global demand for crude and maintaining adequate spare capacity. This is in addition to incremental volumes from non-OPEC producers, expected to be more than 0.8 mb/d and 1 mb/d in 2005 and 2006, respectively. “The challenge in the downstream is a responsibility shared by all parties, including the industry and consuming governments,” the report said. “If left unresolved, it will continue to overshadow the timely actions being carried out on the upstream side and further exacerbate oil price volatility.”
To accommodate the expectation for the continued strength in global oil demand for the remainder of the year, OPEC at its 136th Meeting of the Conference decided to raise its production ceiling by 500,000 b/d to 28 mb/d, effective from 1 July. A further 500,000 b/d could also be placed on the market should prices remain at current levels or continue to move higher, the report said.
In its review of the market, the report said that the latest global oil demand forecast calls for a growth rate of 2.2 % or 1.8 mb/d to a yearly average of 83.9 mb/d. The downward revision to last month’s growth estimate results from slightly lower expected growth in two OECD regions — North America and Western Europe — as well as downward revisions to projections for Latin America and the Middle East.
Turning to supply, the report noted that the full year outlook for non-OPEC supply in 2005 remains unchanged from last month’s report. Non-OPEC supply is expected to average 50.6 mb/d, which represents an increase of 0.8 mb/d over the previous year. The full year outlook for Russian oil production has been revised down again based on actual data for the first quarter and first two months of the second quarter of 2005 which came in slightly below expectations; in addition, the outlook for the second half of 2005 looks increasingly negative. Total OPEC crude output based on secondary sources slightly exceeded 30 mb/d in May, which represents an increase of 97,000 b/d from last month. Year-to-date OPEC production has increased 0.7 mb/d. The demand for OPEC crude has been revised up to 29.2 mb/d from the previous expectation of 29.1 mb/d in last month’s report.
The OPEC Reference Basket in May plunged $2.67 or 5.4% to close the month at $46.96/b as the steep contango market and ample OPEC crude supported strong stock builds, helping to ease supply concerns, the report said. Bullishness revived toward the end of the month, however, on product fears following a strike at five European refineries. The uptrend continued into June as distillate stock levels in the USA triggered further product supply worries which were supported by an early start to the hurricane season in the USA . As a result, the Basket in June rose above the $50/b level for the first time since late April, averaging $50.73 in the week ending 9 June and continued to increase reaching $52.26/b on 15 June.
Posted by Editor Pipeline Magazine
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