The GRC Monthly Oil Report - January 2006

In January, Saudi Arabia generated $12.66 billion, followed by the UAE at $3.89 billion, Kuwait at $3.80 billion, Qatar at $1.41 billion, Oman at $1.27 billion, and Bahrain at $120 million.

The GRC Monthly Oil Report predicts that geopolitical events, accompanied by panic buying, stock piling, and speculation would bring oil prices back to the high $60s range in the next few weeks. These geopolitical events include political turmoil in Nigeria, the stand off between Iran and the West, possibly the UN Security Council, and threats by the Venezuelan leader Hugo Chaves to halt oil exports to the US. This situation may change if economic growth figures in OECD countries, China, and India exceed forecasts or do not meet expectations.

The GRC Monthly Oil Report indicates that GCC oil production declined by 20,000 b/d in January. This decline resulted from a decline in Saudi and UAE production by 40,000 b/d and an increase in Kuwait production by 20,000 b/d. The production of the rest of GCC members did not change.

Average monthly future and spot oil prices increased by more than 10 percent in January. The monthly average price of the OPEC basket increased by $5.62/b to $58.29/b in January, from 52.67/b in December. The average spot price of Brent increased by $6.15/b to $63.181/b in January, from $57.031/b in December. The average spot price of WTI increased by $6.89/b to $67.93/b in January, from $59.49/b in December.

World oil market fundamentals eased slightly on warm weather in North America, but weather-related disruptions reduced production and exports in Russia, Australia, the North Sea, and Iraq. Political turmoil also reduced oil production in Nigeria and Iraq. Various geopolitical issues such as the dispute between Iran and the West over its nuclear program have also influenced oil prices in the last month. The IEA's latest monthly report stated that weather and political related problems reduced world supplies by 450,000 b/d. However, several small increases from various countries added more than 300,000 b/d in January. The result was a net decline in world oil production by 135,000 b/d.

What's Ahead?

In January, oil prices were driven by market fundamentals. Weather-related outages reduced world oil supplies and increased prices in January. Turmoil in Nigeria and Iraq also reduced production. The rest of the geopolitical factors increased market volatility.
The GRC Monthly Oil Report predicts that market fundamentals will continue to determine prices in the next few weeks. The market is still fundamentally tight despite recent increases in inventories, which are high in terms of quantities, but not forward cover. Market fundamentals still support WTI in the high $50s range.