OPEC member countries raising oil output as demand slows

Energy forecasters predict slowing growth in global oil demand in the years ahead, but some OPEC member countries are heading in the opposite direction and ramping up their oil output. OPEC output capacity is expected to increase around one million barrels a day in 2010 as projects enter service in Angola, Iraq, Qatar and Saudi Arabia, according to Bill Farren-Price, energy director at Medley Global Advisors.

Qatar, for example, is set to raise its oil-production capacity early next year from an existing field known as Al Shaheen. The more than $6 billion expansion project brightens the revenue prospects of the Mideast state but highlights a bigger problem brewing for its partners in the Organization of Petroleum Exporting Countries.

After keeping a tight tether on supply in recent years by cautiously investing, the 12-nation cartel finds itself battling an untimely convergence of lackluster consumption that magnifies its own rising supply capacity, which may in turn reignite old battles between members over market share and ultimately push oil prices lower.

“Significant challenges face OPEC next year,” Mr. Farren-Price says. “It will struggle to integrate a wave of new OPEC production capacity that vastly exceeds world demand for its crude.” Many of the projects started development well before the recession.

Projects like Al Shaheen may swell OPEC’s nominal spare production capacity, a measure of its overall capability to bring barrels to consumers, to roughly 7.5 million barrels a day. That would will leave OPEC capacity up about 15% from 2008, almost a 10-year high, depending on how much oil the group is actually producing.

Tags:  Al Shaheen, Angola, demand, Iraq, oil output, OPEC members, Qatar, Saudi Arabia