Demand. World oil markets are projected to tighten this summer due to continued growth in oil demand and production restraint by members of the Organization of Petroleum Exporting Countries (OPEC). Despite the recent increases in world oil prices, global oil consumption is projected to grow by 1.4 million barrels per day (bbl/d) in 2007 and by 1.6 million bbl/d in 2008. About one-half of the projected growth will come from China and the United States (World Oil Consumption Growth). Preliminary first-quarter 2007 data indicate that U.S. consumption rose by over 500,000 bbl/d and Chinese consumption rose by about 400,000 bbl/d relative to first-quarter 2006 levels. Colder weather relative to last year was a major contributor to higher U.S. demand.
Non-OPEC Supply. The growth in global oil consumption from 2006 through 2008 is expected to be roughly double the growth in non-OPEC oil supplies. Non-OPEC production (excluding Angola) is expected to grow by roughly 0.8 million bbl/d in both 2007 and 2008. Output growth from non-OPEC countries reflects strong gains from new projects in the Caspian Sea, Sakhalin Island in far-eastern Russia, Africa, Brazil, and the United States (International Oil Supply Charts). However, declining production from mature basins in the North Sea, the Middle East, Mexico, and Russia will offset the growth potential from these new projects. The outlook for non-OPEC supply has not changed markedly since last month. Revisions to first-quarter 2007 production data for the United States, United Kingdom, and Malaysia have raised our expectations for production from these countries in 2007.
OPEC Supply. From the third quarter of 2006 to the first quarter of 2007, OPEC members cut crude oil production by 1.1 million bbl/d to reduce the buildup in global oil stocks. In the coming months OPEC members will need to consider accommodating the demand for seasonal stock building to keep inventories in the middle of the 5-year range. OPEC crude oil production (including Angola) could increase by 1.6 million bbl/d by the fourth quarter of 2007 when compared with first-quarter 2007 levels. The largest increase occurs in Saudi Arabia, which is expected to increase total production by almost 250,000 bbl/d.
Nigeria is expected to increase crude oil production by 150,000 bbl/d to reach roughly 2.4 million bbl/d by the end of 2007. Shell, which has been forced to shut in the majority of its production, has indicated the possibility of resuming full production at Forcados Terminal (production capacity of 500,000 bbl/d) by September 2007, but it is unclear if Shell’s offshore 115,000-bbl/d EA Platform will be back online in the near future. If the majority of the current shut-in capacity of just under 600,000 bbl/d is brought back online, Nigeria could be producing as much as 2.7 million bbl/d by December 2007. However, ongoing unrest in the Niger delta will continue to hinder the return of this production capacity.
Even though new capacity increases are projected during the next 2 years in OPEC countries (particularly in the Persian Gulf), continued strong demand growth and the need for a seasonal inventory build will limit OPEC’s spare capacity growth. On balance, EIA expects OPEC spare capacity to average 2.5 million bbl/d in 2007 and 2.8 million bbl/d in 2008 (World Oil Surplus Production Capacity), compared with an average spare capacity of 1.3 million bbl/d in 2006. Recent increases in spare capacity levels due to reduced production have come at the expense of reduced inventory cover.
Inventories. OPEC’s production cuts, in combination with a growing demand for oil that is exceeding the growth in non-OPEC supplies, have reduced Organization for Economic Cooperation and Development (OECD) commercial oil inventories from their historically high levels to levels in the middle of the normal range. EIA estimates that OECD inventories could decline by 1.1 million bbl/d in the first quarter (compared with an average inventory draw over the past 5 years of 0.3 million bbl/d for that quarter). Days-of-supply forward cover (the number of days that inventory can cover projected consumption) is expected to decrease to the low end of the normal range by the end of 2007 (Days of Supply of OECD Commercial Oil Stocks).
Source: Short Term Energy Outlook