Oil torn between slowing economies and supply interruptions

Yesterday afternoon the EIA released their latest monthly Short Term Energy Outlook (STEO) report. Following are the main highlights of the report related to the oil sector. As expected they did lower their estimates for global oil consumption but they also lowered their projections for non-OPEC crude oil supply for 2012.

  • World oil consumption grew by an estimated 1.0 million bbl/d in 2011 to 88.1 million bbl/d. EIA expects that this growth will accelerate over the next two years, with consumption reaching 89.4 million bbl/d in 2012 and 90.9 million bbl/d in 2013. OECD consumption fell by 420 thousand bbl/d in 2011 and is expected to decline again in 2012 as very modest demand growth in North America will be more than offset by demand decline in Europe. A projected European economic recovery contributes to a small increase in forecast OECD consumption in 2013. Non-OECD countries are expected to account for most of the world’s growth over the next two years, with the largest contributions coming from China, the Middle East, and Brazil (World Liquid Fuels Consumption Chart). EIA expects non-OECD consumption growth will slow slightly, from 1.5 million bbl/d in 2011 to 1.4 million bbl/d in 2012 and to 1.3 million bbl/d in 2013.
  • EIA expects non-OPEC crude oil and liquid fuels production to rise by 910 thousand bbl/d in 2012 and a further 760 thousand bbl/d in 2013. The largest area of non-OPEC growth will be North America, where production increases by 290 thousand bbl/d and 250 thousand bbl/d in 2012 and 2013, respectively, stemming from continuing growth in production from U.S. onshore shale formations and Canadian oil sands. Other major growth areas include Brazil, where production increases annually by an average of 170 thousand bbl/d over the next two years with increased output from its offshore, pre-salt oil fields, and Kazakhstan, which will commence production in the Kashagan field in 2013 and increase production annually by an average of 125 thousand bbl/d. Production also increases in Colombia, Norway, and China. Notable production declines occur in Russia, Mexico, and Sudan and the United Kingdom.
  • EIA expects that OPEC members’ crude oil production will continue to rise over the next two years to accommodate increasing world oil consumption. Projected OPEC crude oil production increases by about 90 thousand bbl/d and 590 thousand bbl/d in 2012 and 2013, respectively. OPEC non-crude petroleum liquids, which are not subject to production targets, increase by 410 thousand bbl/d in 2012 and by 250 thousand bbl/d in 2013. EIA expects that OPEC surplus production capacity will increase from about 2.3 million bbl/d at the end of 2011 to 3.7 million bbl/d at the end of 2013, in part due to the assumed recovery of Libyan production to pre-disruption levels over the forecast period.
  • EIA estimates that commercial oil inventories held in the OECD ended 2011 at 2.64 billion barrels, equivalent to about 56.4 days of forward-cover (days-of-supply), which is the highest end-of-year level in terms of forward-cover since 1994. Projected OECD oil inventories decline slightly over the forecast, with days of forward-cover falling from current levels to 54.9 days at the end of 2013.
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