A few days ago the International Energy Agency (IEA) — a Paris-based institute that acts as an energy policy advisor to 26 countries worldwide — leveled out their outlook for global oil demand growth for this year.
The organization estimated that when everything is all said and done, global demand will have only averaged 84.78 million barrels a day (MMbbls/d) in 2006.
However, the group believes that global demand will continue to rise reaching 86.38 MMbbls/d in 2007. For energy bulls, this outlook is golden.
After that, the agency says global crude demand will rise by an average of 1.8 million MMbbls/d — or about 2% per year — to reach 93.7 MMbbls/d in 2011.
Now, we’ve heard comparable predictions before.
The Energy Information Administration (EIA) — a similar organization to the IEA and one we’ve talked about in the past — agrees.
This agency recently estimated that global oil demand will increase nearly 2% a year to 103 MMbbls/d by 2015 and then climb to 118 MMbbls/d by 2030!
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Middle East oil fields are parched. Even the Giants such as Ghawar, Burgan and Safaniya-Khafji are requiring POST PEAK PRODUCTION METHODS to squeeze out every last drop.And as the situation worsens, America is turning to some unexpected allies – safe from any terrorist threat or Oil Cartel. A few lucky investors who saw it coming a year ago are already sitting on more than 136%. But that’s just a drop in the bucket when you see where it’s headed.
Regardless of the slight differences put out by the two agencies, both outlooks suggest oil demand will accelerate in coming years despite surging crude prices, which is quickly approaching its all-time inflation-adjusted record.
And the scary part…
Many of the organizations like the IEA and EIA that keep track of the global oil supply/demand figures claim that demand has already outstripped supply several times in the past.
In fact, according to recent EIA calculations, global oil demand exceeded supplies in 2002 and 2003, during the first and fourth quarters of 2005, and during the first quarter of 2006. Take a look below:
Now, at times when demand has outstripped supplies, it has only been by a relatively small margin. But sooner than later, demand will severely outstrip supplies and will cause oil prices to balloon to unheard of proportions.
The already tense oil market has recently been confronted with a flurry of bad news that has taken oil off the market.
On top of the 400,000 barrel per day shutdown at BP’s Prudhoe Bay field in Alaska, recurrent production problems in Nigeria, where the outages are estimated at 750,000 barrels per day, have only added fuel to the supply fire.
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The IEA said in its report that for now the world oil market can cope with current outages taking place worldwide. However, the agency said the security margin is extremely fragile.
"For the time being, the market can cope with current outages, but in the light of the many possible threats to output, including the current hurricane season, there is little doubt that the upstream spare capacity cushion remains thin"
– International Energy Agency
Currently, these outages are being compensated in part by increased production by OPEC. But as you and I both know, OPEC won’t be able to continue increasing their production for much longer.
The IEA says that OPEC’s sustainable capacity could rise to 36.3 MMbbls/d in 2011 from the current average of 33 MMbbls/d, led by Saudi Arabia, the world’s top exporter.
The organization also claims that non-OPEC supply will increase by an average 1.1 MMbbls/d from current output to 56.7 million bpd by 2011, as new oil from regions such as the former Soviet Union offsets a decline in Europe.
But I think this is just wishful thinking.
"I do not think oil prices will come down significantly within the next two-three years"
– Fatih Birol, chief economist of the International Energy Agency
The IEA also said in its latest report that Chinese demand may grow faster than most analysts are expecting. The agency raised its forecast of oil demand from China this year to 7.1 MMbbls/d, an increase of 6.5% from the 2005 figure. The IEA also raised its estimate on Chinese crude demand for 2007 to 7.4 MMbbls/d.
China‘s net imports of crude oil have increased 17.6% year-on-year in the first half of 2006, due to the rapid economic growth and booming automobile purchases.
The Xinhua News Agency reported recently that net imports of crude oil rose to 70.33 million tons while that of refined oil products increased to 12.03 million tons in the first half.
It may sometimes sound like we’re being alarmists and way too pessimistic. But the way I see it, there are no grounds optimism.
Oil prices ARE going to continue rising. And as investors we need to be there as they do.
