Global Petroleum Overview. The oil market continues to be defined by the tension between optimism over the perceived recovery of the global economy on the one hand and persistently weak global consumption of crude oil and other liquid fuels on the other. There are indications that oil consumption could be recovering outside of the Organization for Economic Cooperation and Development (OECD). However, this has been somewhat offset by an erosion of compliance with production cuts announced by the Organization of the Petroleum Exporting Countries (OPEC). The rising level of global oil inventories when combined with weak current consumption indicates overall weakness in the oil market. For example, U.S. commercial crude oil and petroleum product stocks have increased for 5 straight quarters for the first time since 1979-1980, and they are projected to increase again in the third quarter of this year. As a result, the future level of oil prices will largely depend upon the timing and pace of the global economic recovery and the resultant impact on global oil consumption that would tend to erode surplus stocks.
Global Petroleum Consumption. World oil consumption has dropped sharply since the middle of 2008 in response to the global economic downturn and higher prices. Preliminary data indicate that global oil consumption declined by 3.1 million barrels per day (bbl/d) in the first half of 2009 compared with year-earlier levels. OECD countries accounted for 2.8 million bbl/d of the overall decline, while non-OECD consumption recorded a decline of only 300,000 bbl/d. The current macroeconomic outlook assumes that the world economy begins to recover slightly at the end of this year, led by Asia. As a result, EIA expects world oil consumption to grow year-over-year in the fourth quarter of 2009, the first such growth in five quarters. Overall, global oil consumption is projected to decline by 1.7 million bbl/d in 2009, then rise by 940,000 bbl/d in 2010 (World Liquid Fuels Consumption Chart).
Non-OPEC Supply. Total non-OPEC crude oil and other liquid fuels supply is expected to rise by 410,000 bbl/d in 2009 and by 160,000 bbl/d in 2010. Over the forecast period, higher output from Brazil, the United States, and the former Soviet Union is expected to offset falling production in Mexico and the North Sea (Non-OPEC Crude Oil and Liquid Fuels Production Growth Chart). There is some indication that the chronic delays that have plagued non-OPEC projects have begun to ease. However, many projects are still moving forward at a slower pace to either defer necessary investment decisions or take advantage of further reductions in procurement costs.
OPEC Supply.OPEC crude oil production is estimated at 28.7 million bbl/d in the second quarter of 2009, mostly unchanged from first quarter levels, but down 3 million bbl/d from the peak in the third quarter of 2008. The combination of higher prices and OPEC's historical tendency for weaker compliance with production targets over time suggests that OPEC crude oil production could rise over the remainder of the year, unless prices fall sharply from current levels. Rising global oil inventories and increasing tanker activity would seem to indicate that this past trend is continuing. OPEC is scheduled to meet on September 9 to review market conditions and to consider its production policy.
Global Petroleum Inventories.Based on preliminary data, OECD commercial oil inventories stood at 2.75 billion barrels at the end of the second quarter of 2009. At 61 days of forward cover, OECD commercial inventories were well above average levels for that time of year (Days of Supply of OECD Commercial Stocks Chart). EIA expects OECD oil inventories to remain above average levels throughout the forecast period. Industry reports indicate that crude oil and refined products held in floating storage, which are not included in the OECD stock totals, have recently increased to 140 million barrels in response to weakness in global oil consumption and higher levels of contango in the market (i.e., relatively high future prices compared with current prices).
Crude Oil Prices. EIA projects WTI crude oil prices, which averaged $100 per barrel in 2008, to average $60 per barrel in 2009 before recovering to an average of about $72 per barrel in 2010 (Crude Oil Prices Chart). This projection is unchanged from last month’s Outlook. As always, energy price movements are highly uncertain as seen over the last month in the swing in the WTI crude oil spot price from $71.47 on June 29 to $59.62 on July 14 and back up to $71.59 by August 3. Another measure of how the market reflects this uncertainty is the sizable participation in near-term options on crude oil futures contracts at strike prices that are significantly different from current futures market prices. This reflects the tendency for crude oil prices to fluctuate within a wide range in a relatively short period.
Source: EIA – Short Term Energy Outlook