Wednesday, August 20, 2014
FAIRFIELD-SUISUN, CALIFORNIA
99 CENTS

Iraq violence threatens OPEC’s precarious balance

By
From page B11 | June 13, 2014 |

NEW YORK — The upheaval in Iraq could throw the world’s remarkably stable oil market out of balance, threatening a delicate equilibrium that has kept prices steady for four years.

Iraqi oil production is at risk because of the outbreak of violence involving militant groups who seized two cities this week and have pledged to march on Baghdad.

For now, the fighting is mostly in Iraq’s north, away from important oil-producing regions in the south. But the turmoil sent the price of Brent crude, the key international benchmark, up 2.8 percent Thursday to $113.02, its biggest gain since August.

More important, it raised questions about Iraq’s ability to continue to rebuild its oil infrastructure and increase production to meet rising global demand.

Global oil markets have been unusually steady since 2010. Dramatic changes in oil production around the globe have offset each other instead of wreaking havoc. That has helped keep world oil prices high enough to provide OPEC countries with robust income, but not so high that they scare customers away from buying more oil.

“Everybody’s happy,” Secretary General Abdullah Al-Badry said Wednesday in Vienna after the Organization of Petroleum Exporting Countries concluded a semi-annual meeting.

Brent has hovered in the range of $110 per barrel over much of the last four years, with surprisingly low volatility. That has also led to stable gasoline prices for U.S. drivers, who have been paying in the neighborhood of $3.50 per gallon.

“It’s comfortable for everyone,” says Judith Dwarkin, chief energy economist at ITG Investment Research. “The global economy has recovered, oil demand is growing at trend, and prices are high and stable.”

But what has been a comfortable market masks some difficult realities that OPEC has so far been lucky to avoid. There have been production booms in some areas of the world that could have sent prices plummeting. And there have been shortages in other areas, including in OPEC countries, that could have sent prices rocketing higher.

OPEC has been fortunate, experts say, because the organization would be hard-pressed to adjust if this precarious balance were upended. OPEC members have a limited ability to either raise or lower production to steady the market, they say.

Instead, “OPEC hasn’t had to make difficult decisions,” said Michael Levi, Director of the Program on Energy Security at the Council on Foreign Relations.

Production from non-OPEC countries, driven especially by a boom in U.S. shale oil, has risen by 4 million barrels per day over the last four years. That’s more than the entire output of Canada, the world’s fifth-largest producer, and more than enough to push oil prices lower.

At the same time, Iraqi output has risen 22 percent since 2011 to 3.3 million barrels per day, further adding to supplies. That too could have pushed oil prices lower.

But prices haven’t fallen, in part because production from other OPEC members has fallen — though not because of a concerted effort by OPEC. Libyan production has been almost completely held out of the market due to political and labor unrest. Western sanctions against Iran, once the world’s second-largest exporter, have reduced Iranian output by about one-fifth. And production from Venezuela and Nigeria has slipped because of economic and political difficulties.

The rise in production in the U.S. and elsewhere has matched almost exactly the rise in world demand, from 88.5 million barrels a day in 2010 to an estimated 92.8 million barrels a day this year. It also helped cushion the market somewhat from unexpected disruptions.

In early 2011, when Libya descended into violence, Brent crude spiked to nearly $126 per barrel. While Iraq’s violence this week isn’t as widespread, the oil market’s reaction — a rise of 2 percent — is probably much more modest than it would have been years earlier.

Changes to this scenario would put OPEC in a difficult spot. Analysts believe OPEC nations, other than Saudi Arabia, are producing as much as they possibly can, so they aren’t in a position to boost output substantially to meet a spike in demand or avert another unexpected production outage.

Nor would OPEC member countries be likely to make production cuts because they are especially desperate for cash to run social programs and fund national defense.

“OPEC rarely if ever constrains or influences the oil production rate of its member states,” writes Jeff Colgan, a professor at the School of International Service at American University in a study soon to be published in the journal International Organization. “A cartel needs to set tough goals and meet them; OPEC sets easy goals and fails to meet even those.”

Recently, the little balancing the market has needed has come from Saudi Arabia, the world’s largest exporter. As the one OPEC nation with a healthy oil industry, enormous reserves and a relatively stable economy, it has acted on its own to keep the market in balance despite official OPEC production levels.

For example, forecasters expect OPEC production to rise later this year by about 500,000 barrels per day over the official quota of 30 million barrels per day it set at the meeting in Vienna. Nearly all of this will likely come from Saudi Arabia.

And while experts don’t expect much disruption of Iraqi oil, if any, from the recent violence, they say if output is slowed, Saudi Arabia will step in with even more crude to keep the market in balance.

The question, they say, is whether Saudi Arabia can continue, by itself, to do what OPEC as a whole was organized to do. Iraq’s insurgency may make that more difficult.

“The most significant impact from the insurgency is likely to be the disruption to Iraq’s already ambitious targets for oil production,” wrote Tom Pugh, a commodities economist at Capital Economics.

 

The Associated Press

The Associated Press

LEAVE A COMMENT

Discussion | No comments

The Daily Republic does not necessarily condone the comments here, nor does it review every post. Read our full policy

.

Solano News

Vacaville school board candidates sound off during forum

By Susan Winlow | From Page: A1 | Gallery

 
Memorial flight honors beloved Gordon Valley man

By Ian Thompson | From Page: A1, 2 Comments | Gallery

 
Recology goes pink to trash cancer

By Glen Faison | From Page: A2 | Gallery

 
Curtola park-and-ride bill goes to governor

By Barry Eberling | From Page: A3, 1 Comment

 
City reaches milestone for train station project

By Barry Eberling | From Page: A3, 16 Comments | Gallery

 
Caltrans advises Highway 12 delays likely

By Barry Eberling | From Page: A3, 5 Comments

Library’s teen board to meet next week

By Glen Faison | From Page: A5

 
South Solano Dems schedule candidates meet, greet

By Glen Faison | From Page: A5

 
Man convicted of failing to register as sex offender

By Ryan McCarthy | From Page: A5, 15 Comments | Gallery

 
DUI checkpoint nets arrests in Vacaville

By Ryan McCarthy | From Page: A5, 7 Comments

 
 
 
Geiger sworn in as Fairfield planning commissioner

By Ryan McCarthy | From Page: A6

Faith in Action puts out call for volunteers

By Glen Faison | From Page: A6

 
Love, a legend, come to theaters

By Amy Maginnis-Honey | From Page: A7

Suisun City police log: Aug. 17, 2014

By Glen Faison | From Page: A12

 
Fairfield police log: Aug. 16, 2014

By Glen Faison | From Page: A12

Fairfield police log: Aug. 17, 2014

By Glen Faison | From Page: A12

 
Suisun City police log: Aug. 18, 2014

By Susan Hiland | From Page: A12

Fairfield police log: Aug. 18, 2014

By Susan Hiland | From Page: A12

 
Suisun City police log: Aug. 16, 2014

By Glen Faison | From Page: A12

.

US / World

How can authorities restore order in Ferguson?

By The Associated Press | From Page: A1, 28 Comments | Gallery

 
Holder brings his civil rights push to Ferguson

By The Associated Press | From Page: A1, 6 Comments

Strong DOJ response to Ferguson seeks truth, calm

By The Associated Press | From Page: A1

 
As protests rage, Obama struggles to find his role

By The Associated Press | From Page: A1 | Gallery

Ferguson pledges outreach efforts after shooting

By The Associated Press | From Page: A1, 1 Comment

 
Prison company pays $8 million in back wages

By The Associated Press | From Page: A6

Some evacuees of Yosemite-area fire can go home

By The Associated Press | From Page: A6 | Gallery

 
Officials say Lake Tahoe imperiled by wildfires

By The Associated Press | From Page: A8

Committee approves higher pension calculations

By The Associated Press | From Page: A8

 
Veteran rock climber killed in fall in Yosemite

By The Associated Press | From Page: A8 | Gallery

US officials: Video shows American’s beheading

By The Associated Press | From Page: A9

 
Texas Gov. Perry booked on abuse of power charges

By The Associated Press | From Page: A9, 6 Comments

NY took quick precautions after in-custody death

By The Associated Press | From Page: A10 | Gallery

 
AP Exclusive: US changing no-fly list rules

By The Associated Press | From Page: A10

Tens of thousands march on Pakistan’s parliament

By The Associated Press | From Page: A13 | Gallery

 
.

Opinion

Serve and protect? Certainly not

By Letter to the Editor | From Page: A11, 23 Comments

 
Question of the week: Does school start too soon?

By Daily Republic | From Page: A11

 
Government trying to steal rights

By Letter to the Editor | From Page: A11, 24 Comments

No getting away from corruption in state government

By Thomas Elias | From Page: A11

 
Editorial cartoons for Aug. 20, 2014

By Daily Republic Syndicated Content | From Page: A11

 
.

Living

Today in History: Aug. 20, 2014

By The Associated Press | From Page: A2

 
Community Calendar: Aug. 20, 2014

By Susan Hiland | From Page: A2

Horoscopes: Aug. 20, 2014

By Holiday Mathis | From Page: B5

 
Our daughter says she hates her mother and refuses to talk to us

By Kathy Mitchell and Marcy Sugar | From Page: B5

 
10 Things: 10 fresh ways to dress corn on the cob

By The Associated Press | From Page: B6

Think beyond the slice with refreshing watermelon

By J.M. Hirsch | From Page: B6

 
.

Entertainment

TVGrid

By Daily Republic Syndicated Content | From Page: B7

 
Dwayne ‘The Rock’ Johnson set for DC Comics film

By The Associated Press | From Page: A7, 1 Comment

Don Pardo, iconic TV announcer, dies at 96

By The Associated Press | From Page: A7

 
Wife to bury Kasem in Norway, cites heritage

By The Associated Press | From Page: A7, 1 Comment

.

Sports

Rancho Solano women’s team vying for spot in nationals

By Paul Farmer | From Page: B1 | Gallery

 
49ers sign defensive lineman Dorsey to extension

By The Associated Press | From Page: B1

49ers’ Dawson eager to get back out kicking after misses

By The Associated Press | From Page: B1 | Gallery

 
Ohio State: Injured QB Miller done for the season

By The Associated Press | From Page: B2

 
Past US Open champs Djokovic, Federer seeded 1-2 in U.S. Open

By The Associated Press | From Page: B2

Joe Gibbs Racing hires Carl Edwards and Daniel Suarez

By The Associated Press | From Page: B2

 
Philadelphia’s Mo’ne Davis knows hoops, too

By The Associated Press | From Page: B2

Veteran NBA ref Bavetta retires after 39 years

By The Associated Press | From Page: B2

 
Raiders still waiting for Hayden to get healthy

By The Associated Press | From Page: B2 | Gallery

As Durant steps back, US team is moving forward

By The Associated Press | From Page: B2 | Gallery

 
Kluwe, Vikings reach settlement to avert lawsuit

By The Associated Press | From Page: B2

Islanders announce sale of minority stake of club

By The Associated Press | From Page: B2

 
.

Business

Ballmer steps down from Microsoft board

By The Associated Press | From Page: B7

 
Competition heats up for Tesla’s gigafactory

By Mcclatchy-Tribune News Service | From Page: B7

Peanut, almond butter recalled for salmonella risk

By The Associated Press | From Page: B8, 1 Comment

 
McDonald’s to sell packaged coffee nationally

By The Associated Press | From Page: B8

Consumer prices edge up 0.1 percent in July

By The Associated Press | From Page: B8

 
Stocks rise as US home construction rebounds

By The Associated Press | From Page: B8

US home construction jumps 15.7 percent in July

By The Associated Press | From Page: B8, 1 Comment

 
.

Obituaries

June Canaris-Heath

By Brad Stanhope | From Page: A4

 
Richard Ray Jr.

By Nancy Green | From Page: A4

Horace James Sam

By Nancy Green | From Page: A4

 
Joseph ‘Joey’ Kenneth Meyers

By Nancy Green | From Page: A4

Defrances Jean Freeman-Jefferson

By Susan Hiland | From Page: A4

 
Eddie Lee Staten

By Nancy Green | From Page: A4

.

Comics

Get Fuzzy

By Daily Republic Syndicated Content | From Page: B4

 
Zits

By Daily Republic Syndicated Content | From Page: B4

Dilbert

By Daily Republic Syndicated Content | From Page: B4

 
Blondie

By Daily Republic Syndicated Content | From Page: B4

Sally Forth

By Daily Republic Syndicated Content | From Page: B4

 
Frank and Ernest

By Daily Republic Syndicated Content | From Page: B4

Peanuts

By Daily Republic Syndicated Content | From Page: B4

 
Beetle Bailey

By Daily Republic Syndicated Content | From Page: B4

For Better or Worse

By Daily Republic Syndicated Content | From Page: B4

 
Baby Blues

By Daily Republic Syndicated Content | From Page: B4

B.C.

By Daily Republic Syndicated Content | From Page: B4

 
Pickles

By Daily Republic Syndicated Content | From Page: B4

Baldo

By Daily Republic Syndicated Content | From Page: B4

 
Rose is Rose

By Daily Republic Syndicated Content | From Page: B4

Garfield

By Daily Republic Syndicated Content | From Page: B4

 
Wizard of Id

By Daily Republic Syndicated Content | From Page: B4

Bridge

By Daily Republic Syndicated Content | From Page: B5

 
Crossword

By Daily Republic Syndicated Content | From Page: B5

Sudoku

By Daily Republic Syndicated Content | From Page: B5

 
Word Sleuth

By Daily Republic Syndicated Content | From Page: B5

Cryptoquote

By Daily Republic Syndicated Content | From Page: B5