Production. World oil markets have tightened in recent weeks in response to a series of production cuts by members of OPEC, as well as the return of cold winter weather in North America. Although some OPEC members advocated additional cuts when prices had not firmed by January, Saudi Arabia noted that oil inventories had been falling. The OPEC-10 (OPEC excluding Iraq and Angola) made about half of the targeted 1.2 million barrels per day (bbld/d) production cut by January 2007. The OPEC-10 cut their crude oil production in the fourth quarter 2006 by an estimated 0.6 million bbl/d below third quarter levels with Saudi Arabia accounting for half of this reduction. OPEC-10 production could increase by 1.2 million bbl/d by the fourth quarter of 2007 when compared with fourth-quarter 2006 levels.
Beginning in this Outlook, EIA’s projections for OPEC include Angola, which joined OPEC on January 1, 2007. Angola will no longer be included in the aggregate for non-OPEC supply. Non-OPEC production (excluding Angola as of this Outlook) is expected to grow by roughly 0.7 million bbl/d in 2007 and 0.8 million bbl/d in 2008 (this excludes OPEC non-crude oil production growth of about 160,000 bbl/d in 2007 and 260,000 bbl/d in 2008). Output growth from non-OPEC countries reflects strong gains from new projects in the Caspian Sea, Russia, Africa, Brazil, and the United States (International Oil Supply Charts). Declining production from mature basins in the North Sea, the Middle East, Mexico, and Russia will limit the growth potential from these new projects.
Inventories. EIA’s consumption and supply projections suggest commercial oil inventories in countries within the Organization for Economic Cooperation and Development (OECD) could decline by 1.0 million bbl/d in the first quarter (compared with an average inventory draw over the past 5 years of 0.3 million bbl/d). On a days-of-supply forward cover basis (the number of days that inventory can cover projected consumption), forward cover 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).
Spare Capacity. Even though new capacity increases are expected over the forecast period in OPEC-10 countries (particularly in the Persian Gulf), continued strong demand growth will limit OPEC’s spare capacity cushion. On balance, EIA expects OPEC spare capacity to average over 2 million bbl/d in 2007 and 2008 (World Oil Surplus Production Capacity), compared with an average spare capacity of 1.3 million barrels per day in 2006.
Demand. Global oil consumption is expected to increase by over 1.4 million bbl/d in 2007, compared with a growth rate of 1.2 million bbl/d in 2006. China accounts for about one-third of the projected growth in world oil consumption (World Oil Consumption Growth). Consumption growth is projected to average 1.5 million barrels per day in 2008.
Source: Short Term Energy Outlook