Brent Seen Over $100 for 4th Year as OPEC Bets on Demand

Brent, used to price more than half the world’s oil, will probably exceed $100 a barrel for a fourth year in 2014 after OPEC bet that demand won’t weaken enough to warrant production cuts.

The 12-nation group, accounting for 40 percent of global supply, kept its 30 million barrel-a-day output target in Vienna yesterday. Brent will average $105 in 2014, according to the median of 31 analyst estimates compiled by Bloomberg. Six analysts contacted yesterday and Dec. 3 said they wouldn’t adjust their forecasts if the OPEC quota was unchanged.

Some members of the Organization of Petroleum Exporting Countries, notably Saudi Arabia, will probably need to reduce output later in 2014 to prevent a glut, analysts at BNP Paribas SA and Citigroup Inc. said. The U.S. is producing the most oil in a quarter century and Iraq, Libya and Iran have said they plan to increase exports in the next several months.

“Our price projection remains the same at the moment: Brent $110 in 2014, similar to 2013,” Gareth Lewis-Davies, a senior energy strategist at BNP Paribas, said by phone yesterday from London. “At some point later in 2014, they might have to make cuts of 700,000 to 800,000 barrels a day.”

Brent for January settlement fell as much as 1 percent to $111.46 a barrel following OPEC’s decision yesterday, before settling at $111.88. It gained 2 cents to $111.90 as of 3:26 p.m. London time on the ICE Futures Europe exchange. West Texas Intermediate was 57 cents higher at $97.77 a barrel on the New York Mercantile Exchange. The WTI-Brent spread narrowed to the lowest intra-day level in two weeks after U.S. crude inventories shrank for the first time in 11 weeks.

‘Best Condition’

“We have rolled it over,” Ali al-Naimi, oil minister of OPEC’s largest producer Saudi Arabia, told reporters at the end of three hours of closed-door talks in Vienna yesterday. “We are all satisfied.”

Al-Naimi said Dec. 2 that the oil market is “in the best condition it can be. Demand is great, economic growth is improving.”

OPEC’s daily output fell to a two-year low of 30.007 million barrels in November, according to data compiled by Bloomberg. That’s 1.4 million barrels a day above the expected demand for the group’s crude in the first quarter, according to International Energy Agency estimates published Nov. 14.

OPEC has exceeded its official target by an average of 1.2 million barrels a day since it was agreed to two years ago, according to data compiled by Bloomberg.

$100 Minimum

“The price will be maintained at a minimum level of $100,” said Rafael Ramirez, Venezuela’s oil minister, as he left the meeting. “With this decision we have guaranteed a stabilization and a good price for everyone.”

The analysts that said they wouldn’t alter their price forecasts for 2014 if OPEC maintained its output target were from BNP Paribas, DZ Bank AG, Commerzbank AG, Danske Bank AS, Saxo Bank A/S and Nordea Markets.

Output from countries outside OPEC will expand by 1.8 million barrels a day next year, exceeding global demand growth of 1.1 million barrels a day, according to the IEA in Paris. Oil ministers from Iran, Iraq and Libya told reporters in Vienna this week that they intended to expand supply next year. Should they meet the targets set, it would add another 3.65 million barrels a day to the market.

“The downside could come into play if supplies from Libya and Iran are restored and OPEC fails to react,” Ole Hansen, the head of commodity strategy at Saxo Bank in Copenhagen, said by e-mail on Dec. 3.

Growing Production

Iran wants to increase exports following its deal with world powers last month, Minister of Petroleum Bijan Namdar Zanganeh told reporters in Vienna on Dec. 3. Iran, once OPEC’s second-biggest member, agreed to restrict its nuclear program for six months in return for an easing of sanctions.

Iran could boost production to 4 million barrels a day next year if sanctions are lifted, Zanganeh said, a level last seen in August 2008, according to data compiled by Bloomberg. Its output averaged 2.6 million barrels a day last month, compared with 3.6 million barrels a day at the end of 2011, according to data compiled by Bloomberg.

Libya’s crude output will rise to 1.5 million barrels a day within 10 days, from 250,000 barrels currently, as political protests that have disrupted supply are resolved, Libyan Oil Minister Abdulbari al-Arusi told reporters Dec. 3.

Iraq expects to produce 4.1 million barrels a day in 2014, Oil Minister Abdul Kareem al-Luaibi told reporters in Vienna. That compares with an average rate this year of 3.1 million barrels a day, according to data compiled by Bloomberg.

Action Required

Iran wants other OPEC members to make room for its eventual return to oil markets, Zanganeh said. Iraq won’t discuss a limit on its oil production any time soon, al-Luaibi said.

“The price would go down a lot” should the three nations achieve their targets and other OPEC members don’t cut, said Seth Kleinman, the head of European energy research at Citigroup Inc. in London. “Some action is going to be required to balance the market.”

“Saudi Arabia has shown a real willingness to serve as the market balancer,” Jamie Webster, an analyst at IHS-PFC Energy, said in Vienna yesterday.

The kingdom raised crude production by 1.6 million barrels a day in the first eight months of 2011 as the Libyan civil war caused output to collapse by 97 percent, according to data compiled by Bloomberg. Saudi Arabia later pared back 900,000 barrels a day over the six months through February this year as Libya recovered to near its pre-war rate.

Why Cut?

As protests blocked Libyan exports again this year, Saudi Arabia pushed output back up to 10 million barrels a day in September, the data show.

“It will mostly be up to Saudi to manage supplies and defend the $100 barrier,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said in an e-mail yesterday.

Saudi Arabia and its allies Kuwait, Qatar and the U.A.E. will need to produce about 2 million barrels a day less in 2014 to prevent a glut, the London-based Centre for Global Energy Studies predicts.

Saudi Arabia, which produces about a third of OPEC’s crude, won’t need to cut output, al-Naimi said before the closed-door began meeting in Vienna yesterday.

“Why cut production? Demand is there,” he said.

To contact the reporter on this story: James Herron in London at jherron9@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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