Wednesday, July 13, 2011

Oil is not enough for third Quarter

Growth in developing countries will cause worldwide oil demand to climb by 1.5 million b/d in 2012 to average 91 million b/d, the International Energy Agency said in its latest monthly oil market report.

As upward revisions to demand in countries outside the Organization for Economic Cooperation and Development (OECD) outweighed downward adjustments to demand in advanced economies due to persistent high prices and weaker economic activity, the agency hiked its projection of 2011 demand growth by 200,000 b/d to 1.2 million b/d.

OECD oil demand is now projected at 45.7 million b/d in 2012, down 120,000 b/d from this year. The Paris-based agency said that despite expectations of relatively strong 2.6% OECD economic growth next year, greater vehicle efficiency and a continuing price-driven decline in the use of oil for heating and power generation will outweigh the increased economic activity.

Oil demand in non-OECD countries next year will climb 1.6 million b/d to average 45.3 million b/d. Non-OECD Asia, the Middle East, and Latin America will account for most of this growth. China will account for 30% of the increase, IEA said.

Strategic stocks release

In its report IEA discussed last month’s coordinated release of 60 million bbl of strategic oil stocks among its members as a response to the ongoing Libyan crisis (OGJ Online, June 23, 2011). The so-called “Libya collective action” aimed to provide a bridge between rising oil demand in the third quarter and extra supplies made available by major producers in the Organization of Petroleum Exporting Countries, the agency said.

As a result of higher non-OECD demand—despite OECD weakness—and some supply outages in addition to Libya’s, the market looks tighter to IEA than it did a month ago. So the call on OPEC crude and stock change is now 31.3 million b/d for this year’s third quarter, with a sizeable but still unquantifiable portion of this demand to be met by the Libya collective action, according to the report.

The call then fluctuates from 29.8-31.4 million b/d through the end of 2012. Although OPEC oil output increased to 30.03 million b/d last month from 29.19 million b/d in May, the market needs still more oil in this year’s third quarter, IEA said.

Non-OPEC supply
The agency forecasts that driven largely by increased noncrude output, non-OPEC supply will climb to average 54 million b/d next year, up from this year’s 53.1 million b/d. A large portion of the incremental supply will come from Canadian oil sands-derived liquids, biofuels, natural gas liquids, and refinery processing gains, according to the report.

IEA forecasts that supply will climb by at least 50,000 b/d next year from Brazil, Canada, Australia, Colombia, China, and Yemen, while Oman, the US, Russia, and Ghana will add 30,000-50,000 b/d each.

Mexico, Indonesia, Malaysia, and Sudan are forecast to post production declines next year, but Norway and the UK will see marginal growth of about 25,000 b/d each, with some new capacity start-ups and as production recovers at key fields that had problems in 2010, including Gullfaks and Buzzard.

OPEC production capacity

Oil production capacity among OPEC producers, which has been down since this year’s first quarter as a result of Libya’s civil war, should recover in second-half 2012 and average 35.1 million b/d in fourth-quarter 2012, IEA reported.

The agency expects OPEC’s total oil production capacity to expand by 1.3 million b/d during 2012, as Libya recovers and Iraq, UAE, Angola, and Algeria post capacity increases.

Production capacity will reach a low of 33.8 million b/d in the 2012 first quarter, in large part due to ongoing decline in Iran. IEA finds that Iran’s oil production capacity is set to fall by about 150,000 b/d to 3.55 million b/d by next year due to the country’s increasing isolation following harsher international sanctions implemented last year and due to its unfavorable investment terms.

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