Growing demand for crude combined with the slowdown in production of new supplies in other countries is placing the Organization of Petroleum Exporting Countries in a powerful position, say industry analysts.
"Given the mature characteristics of much of non-OPEC oil production, it does not appear feasible that non-OPEC countries, as a group, will be able to deliver meaningful oil supply growth in the future. A permanent non-OPEC peak seems likely within the next 5 years," said analysts in the Houston office of Raymond James & Associates Inc.
"Non-OPEC growth is highly dependent on Russian growth and, given its current policy environment and recent production declines, Russia would do well to return to 2-3% growth," Raymond James analysts said. "Accordingly, the world is likely to continue in an environment of thin excess capacity for the foreseeable future. Given this tight supply-demand equation, threats of even minor supply disruptions are bound to have a large impact on oil prices."
Adam Sieminski, global energy economist for Deutsche Bank, said, "The oil supply slowdown in the Organization for Economic Cooperation and Development and the former Soviet Union is leaving OPEC in charge. Global oil supplies are under pressure from shrinking production prospects in Russia and across a wide swath of the OECD nations. By definition, demand equals supply, and although we think that demand is rising despite the economic slowdown, supply is struggling to keep up."
Energy conservation in the US and the OECD has not been sufficient to offset demand increases in other parts of the world. Global demand for oil grew by 1.1 million b/d in 2007, while the average of the four estimates for 2008 growth is 1.2 million b/d, according to Deutsche Bank.
"The world has been depending on supply growth from the FSU and other non-OECD countries. Russian production growth has tapered off, biofuel growth is likely to be under pressure from rising concerns about food and environmental impacts, and continuing declines are expected in the OECD," said Sieminski. "Based upon the average estimates we have used here, non-OPEC Africa and Latin America offer some hope for oil supply growth, but not enough to offset the likely rising dependence on OPEC."
Natural gas outlook
Meanwhile, the US Department of Energy report released Apr. 30 "showed US gas production screaming upward, increasing year-to-year by an astounding 5.8 bcfd, although we estimate 1 bcfd was taken offline last year due to wellhead freezes," said Raymond James analysts. "Given the acceleration since last October, driven by exploding growth in resource play activity (Barnett shale), when will the market pull its head out of the sand and start paying attention to this key fundamental driver?" Sieminski said, "The real picture for US natural gas supply and demand is complicated and not as bearish as the February wet gas production jump suggests. We remain bullish." He said DOE analysts have been forecasting that US gas production is likely to flatten out in 2008 at a level slightly below January's estimated output of 54.7 bcfd of dry gas.
The surprise February increase in wet gas "suggests that dry gas production in February might be some 1.2 bcfd higher than [DOE's] Energy Information Administration's estimate of 54.5 bcfd. We believe that there are several good reasons to be cautious about jumping to conclusions about a jump in US gas production" said Sieminski.
Although the Rockies Express pipeline start-up in mid-January (now flowing about 1 bcfd) may be responsible for some of the February gains, the Independence Hub accident in mid-April is temporarily pulling 1 bcfd off the market, he noted.
Further more, said Sieminski, "A jump of 1 bcf in production from January to February seems very implausible in view of the leveling off of the rig count in the third quarter of 2007." He said, "Even if supplies did build consistently by 1 bcfd, that must have been offset by rising demand (or lower imports) because the supply-demand balances can be observed in the storage data, and that is inconsistent with a big supply jump."
The EIA reported May 1 the injection of 86 bcf of natural gas into US underground storage during the week ended Apr. 25. That put the amount of working gas in storage at 1.37 tcf, down 255 bcf from year-ago levels and 3 bcf below the 5-year average for the time of year.
US crude inventories shot up 3.8 million bbl to 319.9 million bbl in the week ended Apr. 25. US gasoline stocks fell 1.5 million bbl to 211.1 million bbl. US distillate fuel inventories gained 1.1 million bbl to 105.8 million bbl.
(Online May 5, 2008; author's e-mail: firstname.lastname@example.org)