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April 12, 2011 12:27 pm
In its latest oil market report, released on Tuesday, the IEA described the response by Opec, the oil-producers’ cartel, to the loss of Libyan supply as “limited”. The turmoil in Libya has taken more than 1m b/d off the market, leading to an overall fall in production among Opec’s 12 members of 890,000 b/d between February and March.
Saudi Arabia, which controls about three-quarters of Opec’s spare capacity, raised its output in the first quarter of 2011, producing an average of 310,000 b/d more than during the final quarter of 2010.
But Saudi production remained flat in February and March, averaging 8.9m b/d in both months. Earlier estimates suggested that the kingdom had raised its output by more than 400,000 b/d compared with the end of 2010 to reach a total above 9m b/d.
The fact that output rose by substantially less was partly due to factors beyond the kingdom’s control. “The earthquake and tsunami that have devastated north-eastern Japan reduced overall demand for the country’s crude,” said the IEA report. “A number of cargoes en route to Japan were diverted elsewhere in the region.”
Consequently, Saudi Aramco, the kingdom’s national oil company, decided to “throttle back production in mid-March”, added the IEA.
In addition, Saudi Arabia found it difficult to provide like-for-like replacements for the high-quality blend of crude offered by Libya. “Saudi Aramco saw only tepid demand from refiners for extra barrels due to the quality mismatch with lost Libyan supplies,” the report said.
Opec’s oil ministers will hold their next meeting in Vienna in June. The IEA said they were unlikely to raise their production quotas in response to the recent rise in oil prices, with the cost of a barrel of Brent crude now hovering around $125.
“A collective decision to formally raise output targets looks likely to be elusive in June,” said the IEA.
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