While attention focuses on demand for oil in an economically shaky year, questions emerge about supply from outside the Organization of Petroleum Exporting Countries.
With varying precision, OPEC balances the market. Through its quota system, the group adjusts production of crude oil to meet global demand net of non-OPEC supply, quota-free OPEC natural gas liquids, and inventory changes.
Estimating contemporaneous demand is never easy. Last week, the Center for Global Energy Studies in London applauded the group’s assessment of a demand slump and prompt supply cut in 2009.
“However, the same cannot be said of the organization during the second half of 2010, when preemptive action was required to satisfy the market’s thirst for more oil and none was forthcoming,” CGES said. Consequences linger in the form of large stock draws and proof “that OPEC is adept at slashing production to prop up oil prices but not at satisfying surging oil demand.”
Now, with the global economy wavering, demand is especially hard to predict. But so, say analysts at Deutsche Bank Securities, is another factor crucial to what economics know as the call on OPEC crude.
Projected non-OPEC supply this year may be overstated, write Paul Sankey and Winnie Nip. The analysts assess estimates from the International Energy Agency against production data for 40 major oil companies Deutsch Bank tracks, representing about 60% of total non-OPEC supply.
Company data for second-quarter actual production and full-year estimated output are much lower than IEA’s. While IEA sees a slight increase in non-OPEC supply this year, the company aggregate suggests a decrease of more than 1%.
Among North American and European companies especially, the analysts say, “The production performance is startlingly bad.”
Sankey and Nip’s message: “IEA non-OPEC forecasts look highly optimistic against this kind of (not directly comparable but highly indicative) performance.”
At any level of global demand, underperformance of non-OPEC supply means more crude needed from OPEC members. Oil consumers should hope uncertainty about demand doesn’t distract OPEC from other market perplexities.
(Online Aug. 12, 2011; author’s e-mail: [email protected])