Oil ministers from the Organization of the Petroleum Exporting Countries (OPEC) announced the group’s target output for 2014 will remain unchanged at 30 MMBOPD. Ministers of Iraq, Saudi Arabia and Kuwait made the announcement following a meeting between the exporters on December 22, 2013. “The market is in fear of a shortage of oil,” said Ali al-Naimi, the oil minister of Saudi Arabia, in regards to why WTI has traded near $100 recently. “The market reflects the situation.”

Representatives are scheduled to meet again in June 2014.

OPEC’s unique situation has evolved in recent years due to the meteoric rise in United States production. According to The U.S. Energy Information Administration (EIA), the United States is on pace to surpass Russia as the world’s top energy producer by year-end 2013. Oil production alone has increased by 34% since 2005. The U.S. is already the top producer of natural gas, and its total oil and gas production for 2013 is estimated at 22.2 MMBOEPD.

The United States’ local resources have resulted in a drastic reduction in OPEC imports. In 2008, the U.S. imported roughly 5.4 MMBOPD from the organization. The number decreased by 24% in 2012,ending with a total of just more than 4.0 MMBOPD. With the shale boom expected to last through 2040 and Mexico’s recent landmark decision to privatize its oil industry, OPEC’s role will continue to diminish. Texas alone is predicted to produce 2.7 MMBOPD in 2014, exceeding production from OPEC members like Angola, Venezuela and Nigeria.

OPEC’s Unpredictable Landscape

In addition to less demand from its chief importer, OPEC has witnessed the output of certain members drop from trade sanctions and political unrest. OPEC’s output for December 2013 is 29.4 MMBOPD, up from November 2013’s total of 29.3 MMBOPD, which marked a two year low for the organization.

A major concern among OPEC members is the potential return of Iran to the export market. The country recently reached an agreement with the United States, among other countries, to curb its controversial nuclear program in exchange for an ease on sanctions. While Iran’s oil export total is still capped at 1 MMBOPD, its estimated output in November was 2.8 MMBOPD. The tentative agreement was signed in November 2013 and is scheduled to last six months, with the option for a six month extension. If negotiations progress, restrictions on Iran’s export limit may be loosened, possibly resulting in the saturation of the market. The Energy Information Association (EIA) has not even included Iran’s potential contributions in recent reports, citing uncertainty on pricing and payments. Iran’s minister has high expectations for a return to the global network and said the country seeks to raise its output to 4 MMBOPD in the upcoming year. A goal of 9 MMBOPD is expected to be reached by 2020.

Turmoil in Libya, Nigeria Add to Uncertainty

Problems in Nigeria have been well-documented, ranging from war and the stealing of crude oil. Thieves made off with an estimated 100 MBOPD in 2013, leading to a loss of roughly $1 billion in profits per month. Shell (ticker: RDS-B), arguably the country’s most predominant producer, decided to sell off its Nigerian assets after continuous headaches from pipeline shutdowns resulting from damage and theft. The severity of the disruptions is forcing the country to produce 2.1 MBOPD, roughly 19% below its capacity of 2.5 MMBOPD. The Nigerian government is now under fire for a missing $50 billion in oil revenue, and claims of corruption are running rampant.

Libya’s developments are also severe. Laborers and government opposition have closed oil ports as part of a movement against the central government, cutting the country’s oil output to just 200 MBOPD, just 14% of 2012’s average output of 1.4 MMBOPD. The government, which estimates a loss of $9 billion from the standoff, has failed to reach a deal with its opposition and is threatening to take back the ports by force. The EIA predicts the stalemate to continue through 2014.

OPEC Says Price is Stable, Analysts Disagree

Despite OPEC’s claim of strong global demand related to WTI pricing, the production rates in the United States have been strong enough to bring back the tapering debate. Although Iran won’t have a short-term effect on the market, analysts estimate its current export restrictions keep the price per barrel between $5 and $10 higher than normal.

Robin Mills, head of consulting at Manaar Energy Consulting and Project Management in Dubai, said OPEC “will have to cut or accept lower prices,” in an interview with The Wall Street Journal. “Even if Libya and Iran don’t come back, OPEC will be under pressure.”

Richard Mallinson, an analyst at London-based Energy Aspects, agreed in a New York Times article.  “There is a serious tension between Saudi Arabia and both Iraq and Iran in terms of the potential for those countries to bring increasing volumes into the market and what that means for Saudi Arabia’s share,” he said.

David L. Goldwyn, a former senior energy official at the State Department, said OPEC risked “significant erosion of market share as non-OPEC production rises.” He added that “the question is whether they are going to cede market share and elevate prices, or let prices drop and try to force out some of the high-cost oil.”

Michael Lynch, President of Strategic Energy and Economic Research, said a huge price drop would occur if OPEC members returns to full capacity. Lynch estimates prices could drop as much as $25 per barrel if Libya resumes full production and a permanent agreement were reached on Iran’s nuclear program.

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