• The world oil market is looking more balanced through to the end of 2011, and with early signs that OPEC may be trying to moderate seasonal weakness in the autumn, we see both lower prices and a tighter range ahead—but with increased risks. On the upside, project delays are the main risk, while weaker economic growth, energy efficiency and OPEC intransigence provide downside risks.
• NYMEX WTI prices are expected to average $77.25/bbl for the balance of the year, and $79.25 in 2011, peaking at $85 bbl in the fourth quarter of next year. While OPEC is trying to cement a short term floor under the price around $70 bbl, group cohesion would be challenged by the polarized compliance to current targets should demand fall short of projections.
• Revised supply-side assumptions, in the light of a stronger-than-expected performance in the past 12 months, reflect a growing appreciation that the supply-side inelasticity of the previous decade was due more to capacity constraints and cost inflation than a lack of oil. Free of those shackles, and with prices at which virtually every project “works”, the supply side looks distinctly more benign.
• But supply growth is far from booming. Our projection of 600 kbd of non-OPEC crude and NGLs supply growth in 2011 is tepid to say the least. Taking into account that this also includes projected growth of 210 kbd of biofuels, this is a far-fromstellar surge in output growth. However, add to that an additional 500 kbd of OPEC NGLs and the market looks more balanced.
• The net sum of our supply and demand changes reduces the call on OPEC by 1.2 mbd at the end of 2011; while the call is still rising, much of the extra oil need to meet the gap will be “pushed” from new Iraqi projects. That mitigates the normally strong price effect seen if the market has to “pull” oil from the producer group.
• The biggest supply-side shift has been in Russia, where higher prices and tax reform have led to a shift in spending on EOR and new projects. While there remains considerable debate about the ability to offset West Siberian decline, company guidance suggests that our projections retain upside.
• The demand outlook in our projection has been moderated in recent months, in line with shifts in our economic forecasts. This month sees further changes, which take down 2010 demand growth to 1.8 mbd and 2011 to a “trend” 1.5 mbd. Fuel oil demand has been moderated across-the-board due to increased natural gas penetration and fuel oil “upgrading”.
Oil Market Monthly
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