Released on March 25, 2009
(Next Release on April 1, 2009)

All Eyes on OPEC

Recently, EIA and other oil market forecasters have been paying close attention to how the Organization of the Petroleum Exporting Countries (OPEC) is adjusting to lower global oil demand and weaker oil prices brought on by the global economic recession. Crude oil prices are now almost $100 per barrel off their peak level last year, and most forecasters, including EIA, are projecting 2009 global oil demand to be over 1 million barrels per day (bbl/d) lower than in 2008. In response, OPEC has met four times during the past 6 months, most recently earlier this month, to consider production cuts to arrest the oil price decline and cut rising oil inventories, which had reached a level not seen in the last 9 years in terms of days of supply in countries belonging to the Organization for Economic Cooperation and Development.

OPEC generally holds almost all of the world’s available surplus petroleum production capacity, and its members have frequently intervened over the years to alter production to influence oil prices, usually to support higher prices. During the first quarter of 2009, EIA estimates that OPEC held 43 percent of the world’s production capacity of crude oil and other petroleum liquids. Following OPEC’s most recent round of production cuts, OPEC members’ surplus production capacity had risen to 4.4 million bbl/d, about 5 percent of the total global production capacity of 87 million bbl/d.

The outcome from OPEC meetings is never certain because members often have differing opinions on the need for action. OPEC has met 90 times since it instituted its first production targets in 1982, and has left its targets unchanged 41 times. This was the outcome of OPEC’s most recent meeting on March 15, where its members had to weigh their desire for higher prices against concerns that a production cut could jeopardize any recovery in global oil demand and significantly delay any potential price rise well into the future. OPEC decided to encourage its members to adhere to existing targets.

OPEC members had previously agreed to lower production by 4.2 million barrels per day from September levels to 24.85 million bbl/d. Measuring compliance with the targeted production cuts is difficult because OPEC did not list individual country targets in its most recent communiqués, but estimates from industry and trade sources are available, and EIA has incorporated them in its estimates of compliance in the table below. EIA’s latest estimate of OPEC crude oil production in February, excluding Iraq (which has been exempt from OPEC production targets for the past decade) shows a decrease of almost 3 million bbl/d from last September. This represents almost 70 percent of the 4.2 million bbl/d cut in OPEC’s production target. As the table below indicates, Persian Gulf producers (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar and Iran) appear to have accounted for 80 percent of the overall cutback over the period, with Saudi Arabia alone having shaved output by 1.3 million bbl/d. All eyes will continue to focus on OPEC producers, especially those outside of the Persian Gulf, to see how much they end up cutting production.

Gasoline and Diesel Prices Rise
The national average price for regular gasoline rose 5.2 cents to 196.2 cents per gallon this week, with increases through most of the regions. Although the weekly increase was the largest since February 2 of this year, the price was 129.7 cents lower than this week last year. On the East Coast, the price increased 3.2 cents to 193.9 cents per gallon. After showing the largest regional decrease last week, the Midwest saw the largest regional increase of 9.7 cents this week to 194.9 cents per gallon. The average price on the Gulf Coast jumped 6.8 cents to 187.6 cents per gallon. In the Rocky Mountains, the price rose 4.5 cents to 186.4 cents per gallon, the lowest regional price in the country. The West Coast showed the only regional price decrease, slipping three-tenths of a cent to 213.1 cents per gallon, maintaining the highest regional prices in the nation. The price in California also declined fractionally, inching down eight-tenths of a cent to 215.4 cents per gallon.

For the first time in 10 weeks, the national average price of diesel fuel increased, jumping 7.3 cents to 209.0 cents per gallon. Despite the increase, the price was still 189.9 cents below a year ago. With the exception of New England, where the price was unchanged, prices went up throughout the country, moving above $2 per gallon in all regions. On the East Coast, the price rose 7.3 cents to 216.6 cents per gallon. The price in the Midwest also went up 7.3 cents, taking the price to 203.8 cents per gallon. The largest increase took place on the Gulf Coast, where the price jumped 8.7 cents to 206.0 cents per gallon. The Rocky Mountains region showed the smallest price increase, moving up 4.8 cents to 203.6 cents per gallon. The price on the West Coast rose 5.9 cents to 215.0 cents per gallon. The average price in California jumped 8.0 cents to 212.9 cents per gallon, 199.0 cents lower than the price there a year ago.

Propane Inventories Post First Gain of Year
With winter demand on the wane, combined with the recent surge in imports, primary stockholders reported the first gain of the year that totaled about 0.6 million barrels, moving inventories up to an estimated 37.7 million barrels as of March 20, 2009. The only regional declined reported was in the East Coast last week that showed inventories slipping lower by less than 0.1 million barrels. Other regions reported inventories rising in the Midwest with 0.2 million barrels, followed with a 0.5 million-barrel increase in the Gulf Coast. The combined Rocky Mountain/West Coast region remained relatively unchanged last week. Propylene non-fuel use inventories also rose last week, up 0.3 million barrels to account for a higher 7.6 percent of total propane/propylene inventories from the prior week’s 6.9 percent share.

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