The ability of OPEC to influence the balance of crude markets is diminishing in the face of growing US oil production, with 2013 expected to be a rare instance of a year-on-year decline in the call on the producer group to maintain balanced markets, Barclays analysts said Thursday.
"The pace of growth in US tight oil production continues to surprise to the upside in 2013, to the extent that we now see it starting to reshape some long established patterns in global balances," the Barclays analysts said in a note.
"This is leading to an enduring reduction in the oil market's need for OPEC crude for the first time in many years," they added.
As a result, Barclays said its forecasts for global demand to fall by 200,000 b/d, due mainly to large downward revisions for both Europe and China, and supplies to increase by 600,000 b/d, meant there would be a "small decline" for the call on OPEC crude.
Such a phenomenon, Barclays said, had only occurred four times since 1985 -- "first in 2000 and 2002 as global oil demand growth turned negative due to the impact on the global economy of the bursting of the late 1990s tech bubble; then in 2008 and 2009 as oil demand fell dramatically due to the credit crunch and the hit to global economic activity" -- with the two downturns resulting in sharply lower prices.
"What is different this time round is that the current reduction in the requirement for OPEC crude is only partly related to cyclical demand fluctuations and is more to do with accelerating non-OPEC supply growth," Barclays said.
The analysts expect non-OPEC supply to grow by around 1.1 million b/d in 2013, the fastest rate since 1994. And with US supply likely to continue growing rapidly at least into 2014, any fears of supply failing to keep up with demand growth had been removed, they added.
"Instead, OPEC will come under consistent pressure to limit its output growth in order to accommodate further reductions in US oil import demand as domestic output continues to substitute ... oil from other countries," Barclays said.
"That pressure is unlikely to be very severe in [the second half of 2013] as OPEC's current output level close to 30.5 million b/d is only a few hundred thousand b/d above what we estimate is required for the market to balance," the analysts added.
"However, pressure is likely to build from 2014 onwards, especially if countries like Nigeria and Libya recover some of their recent lost output and capacity grows in other leading OPEC producers," they said.
As a consequence, Barclays also said it had cut its average Brent price forecast for the third quarter of 2013 to $107/b from $111/b, and for the fourth quarter to $106/b from $112/b. For 2013, Barclays cut its Brent forecast to $106/b from $112/b, while slashing its 2014 forecast to $110/b from $130/b.
"We now see the current price rally proving difficult to sustain," Barclays said.
"With fundamentals remaining lackluster, the rally is likely to run out of steam soon and prices fall back a little in Q4 as we expect that still-weak demand will lead to another build up in refined product stocks," the analysts added.
