The first quarter of 2012 saw a significant rise in global crude oil prices. After closing 2011 at $108 per barrel, Brent spot prices exceeded $125 per barrel by early March, before trading in a relatively narrow range for the remainder of that month. This price increase reflected changes in global oil supplies, as significant unplanned disruptions in production from countries that are not members of the Organization of the Petroleum Exporting Countries (OPEC) countered the recovery in Libyan production. Today's discussion explores these recent developments.

The Libyan disruption in 2011, which halted almost all of that country's 1.65 million barrels per day (bbl/d) of crude oil production, garnered the world's attention and helped to drive crude oil prices higher. As of the beginning of the fourth quarter of 2011, there was still an estimated 1.35 million bbl/d of Libyan production offline, but the situation has improved rapidly since that time. By April 2012, offline production was down to 350,000 bbl/d.

Figure 1 shows that total global unplanned production disruptions declined from October 2011 through January 2012 as Libyan production rose. However, during the first quarter of 2012, additional disruptions to production commenced or intensified. As shown in the figure, these disruptions were heaviest among non-OPEC producers, with total unplanned disruptions reaching an estimated 1.6 million bbl/d in February and March. Disruptions are expected to decline in April, but to remain above their January 2012 level.

The shifting of global supply disruptions

Three countries accounted for most of the incipient losses in production from January through March: Canada, Sudan, and South Sudan, with the largest of these disruptions occurring in Sudan and South Sudan (Figure 1). The two countries have a combined baseline crude oil and liquids production of about 460,000 bbl/d, most of which is in South Sudan. For most of the fourth quarter, production was only slightly lower than this level. However, in late January, land-locked South Sudan shut in all of its crude oil and liquids production as a result of an unsettled dispute over pipeline transit fees and other issues that were not resolved prior to its independence from Sudan in July 2011. Negotiations between Sudan and South Sudan related to these issues have been set back by recent military clashes, including around oil installations, in the poorly defined border area.

There are also significant ongoing disruptions in non-OPEC producers Syria and Yemen. While the size of the outages from these producers fluctuates somewhat month to month, as of March, estimated disrupted volumes from those countries totaled 300,000 bbl/d, almost half of the two countries' combined baseline crude oil and liquids production capacity of 650,000 bbl/d. Disrupted volumes in those countries are expected to decrease to about 250,000 bbl/d in April.

Moving from political to technical difficulties, Canada had production issues in March related to the upgraders in its Alberta oil sands. Suncor announced in mid-March that one of its upgraders would be down for three to five weeks, taking about 210,000 bbl/d offline. An additional 110,000 bbl/d was offline in February and early March due to unplanned repairs at the Horizon oil sand plant owned by Canadian Natural Resources Limited, bringing total Canadian disruptions to about 320,000 bbl/d in March, an increase of about 260,000 bbl/d from the fourth quarter 2011 average. However, the Horizon maintenance has since been completed. With the Suncor work winding down in April, Canadian outages are expected to ease to approximately 100,000 bbl/d on average in April.

Production increases among other non-OPEC producers, most notably from the United States, helped to fill the supply gap created by the recent unplanned disruptions described above. Due to increasing production from tight oil plays, U.S. liquids production was up about 250,000 bbl/d in March 2012 compared with the fourth quarter of 2011 average. Kazakhstan and the United Kingdom likewise increased their liquids production almost 200,000 bbl/d over the same period. When considering several smaller outages and production increases, total non-OPEC liquids production was about 70,000 bbl/d higher in March 2012 than it was in both the fourth quarter of 2011 and in February 2012.

While some of the larger unplanned outages in the first quarter of 2012 are now easing, some new unplanned outages have arisen. A payment dispute between the Kurdistan Regional Government and the central government in Iraq has led to 100,000 bbl/d of crude oil recently coming offline in that country. Also, the situation in Sudan has worsened, with the disruption of production in Sudan following actions taken by South Sudan. In addition, concerns over Iran are also impacting the market. EIA's forecast does not factor in any potential effects of the more recent sanctions targeting Iran's central bank and the impending European Union embargo on Iran's crude oil production, because it is too early to assess Iran's ability to place its supply elsewhere. However, preexisting and current sanctions are already a significant impediment to Iran's ability to carry out investment projects that are necessary to offset the natural decline in its crude oil production capability. Due to declining production capability, EIA expects Iran's crude production to fall by about 500,000 bbl/d by the end of 2012 relative to its level at the end of 2011.