20-06-08 As the focus of the global economy tilts toward oil-price talks in Saudi Arabia, consider a chilling set of numbers that speak to why oil prices are near $ 140 a barrel. Oil output in four of the top five suppliers to the US -- the world's biggest oil consumer -- dropped by nearly 1 mm bpd last year. Some of the declines were based on politics -- Saudi Arabia, Nigeria and Venezuela -- are members of OPEC, which has restrained output.
In the case of Saudi Arabia, already hinting at an output rise to its highest level since 1981, the cutbacks can be reversed. But among other top suppliers, Nigeria has been wracked by civil unrest in its oil-producing region, while fields in Venezuela and non-OPEC Mexico are showing strains of age and under-investment. Even Canada eyes lower long-term output amid regulatory scrutiny of its vast oil sands production.

The numbers underscore the notion that even if the Saudis agree to crank up output, there's a deeper long-term supply issue to overcome. With escalating geopolitical tensions surrounding Iran -- OPEC's No. 2 producer -- oil output declines and unrest in key corners of the oil patch, prices may stay at extremely lofty levels for a long time.
Figures from BP's annual statistical review, which include crude oil, shale oil, oil sands and natural gas liquids in their count, show output from these four countries -- Saudi Arabia, Mexico, Nigeria and Venezuela -- dropped by 959,000 bpd in 2007. Canada, the top source of US crude oil imports since June 2005, added 101,000 bpd of output last year, trimming the output shortfall from the main US suppliers to 858,000 bpd.

Rising Angola flows to China
Still, BP data show, output rises from other countries, like Angola, Russia, Iraq and Qatar, trimmed the 2007 global output drop to just 126,000 bpd, the first decline since 2002. Oil demand rose by near 1 mm bpd, BP reckons.
Wellhead production can ebb and flow and exports may swing from month-to-month, and total imports from the top five held relatively steady at around 7 mm bpd of volume, or near 70 % of imports. But there are reasons to be concerned about emerging trends that are also impacting mid-level suppliers.

Angola showed the fastest growth rate of any oil producer last year -- a whopping rise of near 21 %, or 300,000 bpd -- to 1.7 mm bpd. But the world's fastest-growing oil producer has hooked up with the fastest-growing oil consumer.
In the first four months of 2008, Angola has become China's top source of crude imports, with a surge of nearly 43 % to 660,000 bpd. Angola accounted for 18.4 % of demand in China, the world's second-biggest oil consumer, after the US. US imports from Angola slid 15.6 %, or about 85,000 bpd in the first four months of the year, and it ranks as the seventh-biggest crude source, down from sixth in the 2007 period.

Ascendant Angola has passed Nigeria as Africa's largest oil producer in the past two months, as violence in the Delta region has cut Nigerian output. Nigeria's oil and finance ministers were quoted as saying attacks on oil facilities have cut output to 1.8 mm bpd, well below the country's OPEC quota of 2.16 mm bpd.
Nigeria's output hasn't been below 1.8 mm bpd on a monthly basis since August 1994, when a oil workers joined a two-month pro-democracy strike, slashing output to around 1.5 mm bpd.

Nigeria heading to 20-year low?
Amid the latest unrest, Shell declared force majeure on deliveries of 225,000 bpd of Bonga crude for June and July. On top of that, the oil workers union said talks with Chevron have collapsed, raising the possibility of a strike, potentially impacting a further 350,000 bpd of output. If that occurred, an output fall to 1.45 mm bpd would mark a 20-year low.
Even though the US gasoline market is slumping amid record-high retail prices above $ 4 a gallon, US refiners are strongly reliant on supplies of Nigerian light, sweet crude oil, which is easy to refine and yields high gasoline volumes. In April, latest data show, the US imported 1.1 mmbarrels of Nigerian crude, making it the fourth-largest crude supplier, with an 11.2 % of imports. Nigeria has pushed ahead of Venezuela as a top supplier to the US. Volumes from Caracas have dropped even before the country cut off oil sales to ExxonMobil in a dispute over the nationalization of oil facilities in Venezuela.

For Mexico, the giant Cantarell oil field is showing its age and declining faster than had been expected. The country is struggling to hold the line on output, with energy ministry officials warning that by 2016 or before Mexico could be a net importer of crude, if the current situation continues. State oil company Petroleos Mexicanos said that crude oil output in June has risen to above 2.8 mm bpd from a nine-year low in April, but still below the company's target of 2.9 mm bpd for the month.
In the first five months of the year, Mexico's output averaged 2.86 mm bpd, down 9.3 % from a year ago. US Energy Information Administration data show that crude imports from Mexico have dropped by 16.4 % in the first four months of the year from January-April 2007. Mexico dropped to third place so far year in the table of top suppliers to the US, trading places with Saudi Arabia, the world's largest oil exporter.

Signals from the Saudis
In light of oil price climbing to record levels near $ 140 a barrel, Saudi Arabia's King Abdullah has called a meeting of major oil producing and consuming countries in the Red Sea city of Jeddah. Saudi Oil Minister Ali Naimi said that comments made by the United Nations secretary general after talks in the kingdom were correct, implying that the Saudis will lift output by 200,000 bpd in July to around 9.65 mm to 9.7 mm bpd, which would be the highest level since August 1981, according to US data.
Analysts and industry sources said they've heard from the Saudis talk of pushing output to 10 mm bpd, but the kingdom hasn't addressed that issue directly before the Jeddah talks. The Saudis hold nearly all the world's spare output capacity.

While Canada lifted exports to the US to near 2 mm bpd in April, the outlook for supplies from the north isn't completely benign. While refiners have invested in upgraders to handle Canadian crude produced mined from tar sands and processed into liquid form, the process brings heavy environmental concerns.
Producing oil from tar sands produces more pollution-causing greenhouse gases than conventional oil, drawing higher scrutiny amid growing global-warming concerns. There's no direct assault on oil sands imports, but comments from some in Congress have raised concern among Canadian authorities.

Canadian energy officials have commented about the nation's ability to export the crude to Asian markets if the US turns sour on oil sands. The Canadian Association of Petroleum Producers revised downward by about 180,000 bpd its expectation for demand for oil sands crude in 2015, amid rising costs and regulatory scrutiny.
David L. Goldwyn, president of Goldwyn International Strategies in Washington, saidhe's optimistic that growing supply from Brazil, Saudi Arabia and perhaps Libya and Angola will make its way to the US market in the medium term. But, the former assistant secretary of energy for international affairs in the Clinton administration warned, in Nigeria, the "outlook is bad for the next year or so."