Crude oil prices fell on the news last month that the IEA had raised its predictions of oil supply. But were they right to?
The non-Opec world, predicted to be on the edge of production decline, would actually increase oil production by about 1m b/d in 2010 – 2015, the agency said.
But the increase during this period will only be 1m b/d — less than a fifth of total projected world supply growth. The vast majority, in otherwords, will come from Opec members.
And there are two other points making the non-Opec growth look less impressive.
First, all the gains are made in 2010 and 2011. From 2012 onwards, total output declines:
Second, the non-Opec growth is driving wholly by non-conventional liquids, including biofuels and natural gas liquids. Conventional crude oil falls by 1m b/d during the period. Barclays Capital analysts have charted the breakdown of non-Opec supply growth over the next five years:
And on the consumption side, meanwhile, the two fastest growing consumers of oil are increasingly snapping up oil assets. India, apparently unnerved by China’s buying spree, wants to make more overseas energy acquisitions itself.
Of course, oil markets are fungible; a barrel of any given grade of crude commands a similar price regardless of its provenance. But either way, Opec will have a growing role in oil markets. The effect that has on oil prices depends on your view of Opec itself. In theory, it could certainly give the cartel more influence over world oil prices.
By contrast to the rest of the world, Opec is apparently awash with spare capacity. Or at least, Saudi Arabia is: Petroleum Intelligence Weekly estimated in May that the country had 6.6m b/d of spare capacity, having completed a big upgrade to its upstream facilities. The publication however is sceptical as to whether the cartel can take advantage of that to keep prices in the $70 – $80 price it prefers these days.
True, Opec is notoriously poor at enforcing its own production quotas. But the group is credited with having kept oil prices relatively high during 2009 — higher than many believed the world economy warranted.