Opec shipments rise, says report
Manama, December 4, 2007
A substantial increase in Opec crude oil shipments could be on the way, a Merill Lynch report said.
'Wet freight rates have strengthened phenomenally in recent weeks. Routes from the Arab Gulf to Singapore and Japan nearly tripled in a matter of days, indicating that a substantial increase in Opec crude oil shipments is on the way,' the report said.
Assuming Opec confirms an additional 500,000 barrels per day (bpd) increase in output next week, the report estimates that Opec crude production could move from a low of 30 million bpd last June to 32 million bpd in March 2008. In addition, non-Opec crude oil supply could also increase sequentially by 1.1 million bpd by March.
'As we expect limited refining capacity growth in the next six months, we believe that the incremental supply of crude oil will likely exceed the market’s ability to refine it. In effect, a significant increase in the physical supply of crude probably implies that simpler refiners in various parts of the world will increase their crude runs. Ultimately, this situation could drive up the supply of heavier petroleum products relative to light transportation fuels, suggesting that light-heavy spreads could widen in the near-term,' the report notes.
Of course, if refiners are unable to absorb the incremental crude supply, the natural alternative will be to store the additional barrels. Thus, another side effect of crude supply exceeding demand in the short-run could be a build up in crude inventories in OECD countries, it said.
However, market participants do not have an incentive to store crude oil when the market is in steep backwardation, suggesting that the WTI and Brent term structures could flatten significantly in the next few months. More importantly, as the market will likely be unable to absorb the incremental crude, oil prices could dip below $80 bbl in the next few months.- TradeArabia News Service