Oil inventories secondary, market hostage to Europe

The EIA released their latest monthly Short Term Energy Outlook (STEO) yesterday afternoon. Following are the main oil related highlights from the report.

Given expected rates of global oil consumption growth driven by emerging markets outside of the Organization for Economic Cooperation and Development (OECD), a combination of increased oil output from members of the Organization of the Petroleum Exporting Countries (OPEC) or inventory withdrawals of about 200 thousand bbl/d will be needed in 2012 to supplement non-OPEC supply growth in order for the oil market to balance at the prices projected in this Outlook.

This forecast assumes non-OECD oil-weighted real GDP increases by 4.9 percent and 5.2 percent in 2011 and 2012, respectively. Forecast OECD oil-weighted GDP growth slows from 1.7 percent in 2011 to 1.5 percent in 2012. EIA expects that world crude oil and liquid fuels consumption will grow from 87.1 million barrels per day (bbl/d) in 2010 to 88.1 million bbl/d in 2011 and 89.5 million bbl/d in 2012 (World Liquid Fuels Consumption Chart). China and other emerging economies account for most of the projected crude oil and liquid fuels consumption growth through 2012. OECD consumption is projected to decline by 0.4 million bbl/d in 2011, and to remain relatively flat in 2012.

Projected total U.S. liquid fuels consumption in 2011 falls by 260 thousand bbl/d (1.4 percent) from 2010. Motor gasoline consumption accounts for most of the projected decline for the year, shrinking by 230 thousand bbl/d (2.6 percent). EIA expects total liquid fuels consumption to increase by 120 thousand bbl/d (0.6 percent) to 19.0 million bbl/d in 2012.

EIA projects that non-OPEC liquid fuels production will grow by 0.4 million bbl/d in 2011 and 1.2 million bbl/d in 2012 to an average of 53.3 million bbl/d next year. While forecast OPEC non-crude liquids production, which is not subject to production targets, is expected to increase by 0.4 million bbl/d in both 2011 and 2012, EIA expects OPEC crude oil production to remain largely unchanged in both years after having grown by 0.7 million bbl/d in 2010. Libyan crude oil production, which began to recover in September, increased from an average of 350 thousand bbl/d in October to an estimated 550 thousand bbl/d in November. Given recent developments in Libya’s oil sector, EIA now expects Libyan crude oil production to rise to an average of 900 thousand bbl/d during the first quarter of 2012 and to 1.2 million bbl/d by the fourth quarter of 2012, compared with pre-disruption output of 1.65 million bbl/d.

EIA expects that OECD commercial inventories will decline in 2011 and 2012. However, because of declining consumption, days of supply (total inventories divided by average daily consumption) increases slightly, from 56.9 days in the fourth quarter of 2011 to 57.3 days in the fourth quarter of 2012.

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