What a difference a quarter makes. The IEA has updated its forecasts for oil demand and supply to 2014, and a big change is that non-Opec supply now increases by 0.7m barrels per day during the five-year period, rather than decreasing by 0.4m b/d. Furthermore, decline rates of production capacity remain unchanged:
No across‐the‐board changes are made to future decline rates, since there is little
evidence that lower spending in 2009 versus 2008 has so far exacerbated these compared with our original expectation.
An 0.7m increase is fairly small, but not long ago the IEA was predicting non-Opec production capacity would peak around 2010.
The main source of higher non-Opec capacity is Russia, long an exception to non-Opec supply trends. The IEA estimates the country will produce 270,000 b/d more this year than was previously forecast. Forecasts for Opec capacity for 2009 – 2014 has also been raised, from a 1.7m b/d in the June forecast to 2.8m b/d today.
Here’s how the IEA sees growth in production capacity breaking down over the next four years:
And prices won’t necessarily fall: worldwide demand over the period has been raised a substantial 1.9m barrels per day on the back of an improved economic outlook:
Our higher GDP case hinges on the IMF’s October 2009 outlook, which sees more frontend
loaded recovery than last time, but with the global economy again regaining trend growth
around 4.5% later in the forecast. Assumed crude prices follow the futures strip as at early December 2009, equating to $80/bbl (nominal) by mid‐decade, compared with the $70/bbl assumed last time. The higher GDP case generates annual average demand growth of 1.2 mb/d (+1.4%) from 2009 onwards, taking world demand close to 91 mb/d by 2014. All of the growth comes from the non‐OECD, which overtakes the OECD to account for 51% of world demand by 2014. Of course, much dust still has to settle in the aftermath of the 2008 economic meltdown, but our working assumption remains that a degree of structural demand destruction has occurred, notably in the OECD, which may constrain overall levels of demand growth in future.