With fresh data out from EIA Washington just yesterday afternoon, and, on the heels of Tuesday's IEA Paris’ long-overdue admission of Peak Oil, I thought I would release a crude oil forecast. This is a production chart that I’ve been working on over the past few weeks.
I use rough estimates of future world GDP, the recent mix of primary energy use with special attention paid to coal vs oil use, and then finally decline rates in global oil production. Despite these efforts, any forecast of this nature is at best general in nature. That said, the trajectory here is worth paying attention to (click to enlarge):
The chart shows the most recent data through October of 2010, as current year average production now stands at 73.434 mbpd (million barrels per day). The problems in future production come through a combination of the factors I listed above, plus, the inability of the OECD to pay the significantly higher prices now required to increase global supply. These problems exist right now. Oil’s current advance once again into the 80 dollar range in part reflects the fact that the supply increase enjoyed in the latter part of 2009, is now over. That supply increase was largely funded through the supply crash of late 2008 into early 2009.
Unfortunately, beyond the amplification effects of the US Federal Reserve’s quantitative easing policy, the seemingly gentle supply decline you see forecasted into 2011 and 2012 will be accompanied by a fairly large price spike. That price spike will not only kill more demand, but, will also bring on a small amount of supply that shows up later in 2013. In other words, both price and the global economy will be more volatile than average annual supply into 2013. Afterwards, the aggregate effect of all factors–including what’s due to take place in the global economy–triggers the sharper decline in production into 2014 and 2015.