Non-Opec nations to increase supply; renewed pressure on oil prices likely

Written by Sanjay Jog | Mumbai | Updated: Mar 17 2009, 04:19am hrs
The Organisation of Petroleum Exporting Countries (Opec) preliminary figures indicate that supply from non-Opec nations is expected to average 50.70 mb/d in 2009, an increase of 0.37 mb/d over the previous year and a downward revision of around 190 tb/d from the previous assessment. Indias supply is anticipated to grow by 10 tb/d supported by the Mangala project. On a quarterly basis, supply from non-Opec countries is forecasted to stand at 50.78 mb/d, 50.58 mb/d, 50.48 mb/d, and 50.97 mb/d respectively.

As a result of the expected increase in the total supply from non-Opec countries and negative growth in oil demand, required Opec crude in 2009 is projected to decrease sharply by 1.8 mb/d, building on the decline of 0.5 mb/d in 2008. Moreover, with the persistent decline in demand, OECD crude inventories in terms of forward cover remain at an excessively high level of 57 days. On the supply side, the forecast for non-Opec supply calls for an increase of 0.4 mb/d following a contraction of 0.2 mb/d in 2008. This forecast has been revised down from an initial projection of 0.9 mb/d to take into account the impact of the current price environment on investment and production.

Opec in its latest report on world oil demand supply released on March 13 said the world oil supply decreased by 0.70 mb/d in February from the previous month to average 83.47 mb/d. Non-Opec supply experienced an increase of 0.12 mb/d while Opec crude decreased as reported in the previous section. Opec crude oil share in global production declined to 33.4% in February.

Similarly, total crude oil production of Opec averaged 28.03 mb/d in February, according to secondary sources, a decline of 684 tb/d from the previous month. The production in all member countries declined with the largest decreases coming from Saudi Arabia, Iran, and Kuwait. Opec crude production, not including Iraq, stood at 25.72 mb/d, a decline of 649 tb/d from Januarys 26.36 mb/d.

Total OECD countries oil supply is forecast to decline by 140 tb/d in 2009 to average 19.47 mb/d, representing a downward revision of around 32 tb/d from the last assessment. The minor downward revision was necessary due to project delays as well as adjustment to actual production data for January and February estimates. The US supply was revised higher, but not enough to offset the downward revision to other OECD countries.

Opec observed that its action at the end of last year proved effective in halting the steep downward slide in prices and helped them to stay close to $40/b. With continued economic deterioration and demand erosion as well as the impending low demand season, there is likelihood of renewed pressure on prices. Given the interlinkages between the short, medium and long-term timeframes, oil prices need to remain at levels that support energy investment across the supply chain to help sustain long-term economic growth.

Having lost more than $100/b, crude oil prices began the year with the potential risk of even further declines. Instead, prices have been relatively steady, with the Opec Basket remaining in the low $40/b range so far despite a steady stream of bleak economic and demand data as well as the existing overhang in crude oil inventories.

Slippery track

Opec crude in 2009 is projected to decrease sharply by 1.8 mb/d, building on the decline of 0.5 mb/d in 2008

Opec in its latest report on world oil demand supply released on March 13 said the world oil supply decreased by 0.70 mb/d in February from the previous month to average 83.47 mb/d

Supply from non-Opec countries experienced an increase of 0.12 mb/d while Opec crude decreased as reported in the previous section

Opec crude oil share in global production declined to 33.4% in February.

The production in all member countries declined with the largest decreases coming from Saudi Arabia, Iran, and Kuwait

Opec crude production, not including Iraq, stood at 25.72 mb/d, a decline of 649 tb/d from Januarys 26.36 mb/d

Total OECD countries oil supply is forecasted to decline by 140 tb/d in 2009 to average 19.47 mb/d, representing a downward revision of around 32 tb/d from the last assessment