Considering some oil numbers before the inevitable in Syria

As the likelihood of an attack by Western powers on Syria continues to roil the oil markets, here are a few numbers that we offer as background:

Syrian production: It’s about 50,000 b/d. A few years ago, it was about 350,000 b/d.

Days’ cover: This figure is just for OECD nations, which consist of 34 key countries with market economics. Days’ cover is a statistic published by the International Energy Agency — an arm of the OECD — noting how many days of inventories would cover consumption if supply dropped to zero. In the second quarter of this year, days’ cover held by industry stood at 59 days, which is at the high end of recent estimates.

Goldman Sachs estimate: But a report by Goldman Sachs last week indicated that those second quarter inventory figures are very much a thing of the past. The report notes problems in Libya and Iraq — more on that later — and says that these OPEC outages, since the start of summer “have taken 33 million barrels off the market, which was further exacerbated by a 32 million barrel downward revision to total OECD petroleum inventories by the IEA.” And ominously, the report notes: “This completely erases the surplus cushion developed in 2008/2009, bringing OCED inventories back to 2008 levels at the same time as Saudi Arabia is producing near 10 million b/d, geopolitical risk remains high and oil demand is running above expectations.” It reduced its end-October forecast of global inventories by a “significant” 94 million barrels.

Libyan production: The news out of Libya changes every day, but it’s usually not good. The only question is which supply source is going to get hit with some sort of disruption. In the latest news, traders told Platts today that the El Sharara field in western Libya is shut because a pipeline that brings crude from the field to the export terminal of Zawiya had been attacked by militants. With this kind of confusion, it’s tough to get a hard estimate on Libyan output. For example, Libyan oil minister Adbel Bari el-Arousi told Libyan TV Tuesday that production was running at around 665,000 b/d. There are other estimates that output is down to 200,000 b/d. Platts’ estimate of July production was 1 million b/d.

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North Sea output: The list of fields and platform undergoing maintenance, tightening up a market most visible in the now widening Brent-WTI spread, is too long to list. But here’s a statistic that pretty much sums it up: the association of UK offshore operators said last week that the country’s oil and gas production could decline this year by as much as 22% from last year’s figure. It put estimated output at a range of 1.2-1.4 million b/d of oil equivalent. It was 1.53 million boe/d in 2012. The decline is larger than expected; in February, the estimated output for the year was seen as maybe reaching 1.5 million boe/d.

US production: In its weekly report–which is considered preliminary and subject to revision–the Energy Information Administration said US output last week rose to 7.61 million b/d. That’s the highest since 1989.

How high will Brent go?: The most bullish forecast we can find is that of SocGen. “We believe that in the coming days, Brent could gain another $5-10, surging to $120-$125, either in anticipation of the attack or in reaction to the headlines that an attack had started,” the bank said in a report released yesterday. “In our base case, we assume an attack begins in the next week. If it takes longer, and there are no signals that an attack is imminent, the oil price uplift from the entire Syrian situation will start to fade. Our base case scenario does not include any actual supply disruptions resulting from the US-led attack on Syria.”

And that last sentence, of course, may ultimately be the most important. For all the gains in price this week, nobody is laying out a plausible scenario in which supply is disrupted by cruise missiles streaking along the road to Damascus. But the attack will occur against a world oil supply picture that looks increasingly tight, and if not for the Bakken/Eagle Ford/Niobrara/Gulf of Mexico/Utica/etc., as well as Canada, would be almost disastrous for the world’s consuming countries.


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