Oil Demand Down, Supply Up

Recent estimates by the The International Energy Agency [IEA] and OPEC both point to slightly reduced global oil demand due to the impact of higher prices and lower economic growth in the OECD countries, primarily the U.S. The IEA indicated in a report that oil demand will grow 690 kb/d in 2008 and 890 kb/d in 2009.  The Oil and Gas Journal (8/25/08, p. 68) reports that OPEC has reduced its estimated global growth rate by .1% for 2008 and warned that 2009 oil consumption could fall.  Demand for oil has been reduced most in the U.S. where consumption during the first 7 months of 2008 fell 3.8% or 800 kb/d.  World oil consumption in 2008 was forecast by OPEC to grow by 1 mb/d, down just 30,000 b/d from a prior forecast and is estimated to grow 900 kb/d in 2009, the lowest rate since 2002.  Oil demand is continuing to grow in oil exporting countries, China, India, and other developing countries. 

In both cases the demand estimates are lower than previous ones.  Summing the two reports, the bottom line seems to be that world oil demand is still rising but at a slower rate than was previously forecast and at much slower rate than in recent years.  My experience is that the direction of changes in estimates tends to remain the same during a cycle, so I would not be surprised to read in coming months that new estimates of demand for oil will be lower than current estimates. 

Meanwhile, OPEC reports that non-OPEC oil supply will increase 580 kb/d in 2008 and is estimated to increase by 900 kb/d in 2009.  The IEA says that  ‘We do think there is a bit of a bulge in new projects coming onstream over the next 12/18 months,’ he said. ‘But after that non-OPEC growth continues to look pretty sluggish again.’  Other recent reports note that OPEC supply is bulging.  OPEC recently voted to keep its quotas in place but to produce to its quotas, which would have the effect of reducing supplies by 500 kb/d.  But the Saudis immediately said they would keep producing as much oil as they they can sell.  The Saudis are reported to be producing 9.5 mb/d, a very significant increase over recent years. 

In sum, it seems like the world should be well supplied with oil in 2008 and 2009 as my recent megatrends analysis indicated and as other analysts have also indicated.  It appears that the Saudis are quite happy to see oil prices come off their recent high - not a surprise since the King went so far as to call a global meeting some months ago of oil ministers to devise plans for reducing the price of oil.  Many oil producing countries seem to want to protect the $100 per barrel price, but the Saudis seem not to be in that camp.  So for the moment at least there is a split among the world’s major oil producers as to what price outcome is desirable.   Supply and demand dynamics through 2009 do not seem favorable to those who want higher prices.

Comments

[Alex Filonov:]

Well, if this analysis holds up, $100 oil is way too high.

2008 Sep 11 01:23 PM

[ozzy43:]

Seems to me to be unlikely that we'll get any decent visibility into longer term oil price levels/trends until the November elections have passed. I also think the issue of resource nationalism/exports - especially given the recent actions and resulting re-alignment in the Caspian Sea region [ www.atimes.com/atimes/... ] - are set to play a large role once they've been more widely understood, and so simple production vs consumption analyses that ignore the geopolitical aspects are bound to be quite limited in their ability to yield solid conclusions. Therefore, instead of focusing on one single production model - megaprojects - it's probably wiser to look at a range of models to get a better overall sense, as the oildrum does here:

www.theoildrum.com/nod...

Includes, but does not limit itself to, the megaprojects data. So the question becomes: if you use this production analysis as a basis for comparison to anticipated consumption, does that change the conclusions? Or does it just obfuscate things?

2008 Sep 11 03:31 PM

[Alan von Al...:]

It all depends on war risk.

2008 Sep 11 08:10 PM

[NOWHEREMAN:]

The above scenario presumes the current malaise will extend through 2009 Globally. A snowball would have had a better chance in Krakatoa than to believe the Governments of the emerging markets would retain their majorities for that lenght of time.

(I've been waiting for a long time to use both Malaise and Krakatoa in the same post. I really liked the use of Obfuscate above.)

2008 Sep 12 08:46 AM

[Tim Miles:]

And hurricanes, Alan. The long term trend is for expensive oil too. So the best America can do is to conserve and start weaning itself away from dependence on oil.

2008 Sep 12 08:48 AM

[Old Trader:]

For well over a year, I've been hearing from various sources (including here, if I'm not mistaken), that most/all of Saudi "excess" capacity consists of heavy, sour crude. Granted, if things continue to slowly settle down in Iraq, that would help the supply side. Against that, however, is Russia's apparently growing propensity for using energy as a political "weapon". Although growth is slowing in the EMs, it hasn't, and unlikely won't stop. I seem to recall the current call is 7% growth in China...sure, down from 10-11%, but still, not TOO shabby.

2008 Sep 12 10:20 PM

[NOWHEREMAN:]

For the first half of 08' Chinese GDP averaged 10% and oil imports were up 11%. GDP for 3rd qtr will probably slow dramatically because of Pre and Post Olympic activities. Pre shutting down industries, Post restarting same.

My guess is that oil was used extensively, before and during the BO(Beijing Olympics). And will continue forward at an 8.3 to 8.5 Mil. daily rate for the rest of 08'. This would be a 10% increase above 07'.

These figures are guestimates of my own based on Chinese announcements a month after the quake.

Put it all together, if there is an Opec decline of .5 mil, then the West would have to decrease Usage by 1.3 mil just to break even with 07.

Meanwhile, our inventories are being severely hampered by these hurricanes. And while the SPR can/will be utilized, we cannot afford to reduce it permanently.

Hurricane Ike is pounding Texas as I write this. More people stayed because Gustav was not as bad as initially feared. Ike is worse than the hit taken in 1983. Worse because of the 25 years of non Hurricane growth in the area. It is a monster storm which has predictions of 3 million people without power. The path prediction looks like it will impact half of the crop areas of the Midwest with heavy flooding.

This is a body blow to the US economy. I expect the Fed to lower the discount rate next week in response.

2008 Sep 13 06:29 AM

[Kunst:]

Demand is a function of price. There is no "global oil demand" independent of price. Demand at $10 a barrel is different than demand at $100 a barrel or $200 a barrel. Normally, supply is also a function of price, though typically delayed. The problem with oil is that we have entered an era where increasing supply is going to be difficult if not impossible.

The world will consume as much oil as is available. The price will adjust to match demand to supply.

2008 Sep 14 02:23 AM