Is the world losing its ravenous appetite for oil?
The International Energy Agency just cut its projections for worldwide oil demand over the current year for the third straight month. That, by the way, means Europe is likely to face its lowest consumption levels in nearly thirty years.
The IEA’s reduction amounted to some 45,000 barrels per day. The new rate of increase, per Bloomberg, was pegged at 795,000 barrels per day, to a total of 90.58 million barrels per day through 2013. Meanwhile, demand in Europe is set to drop by 330,000 barrels per day.
Bloomberg quotes the IEA’s report:
“Europe remains by far the worst affected of all the large oil consumption regions, as the ravages of the bleak macroeconomic backdrop continues to take its toll,” the Paris- based group said in its monthly oil market report.
As the Eurozone’s financial doldrums continue, Brent futures slid down by 12 percent from the year’s intraday trading high to roughly $105/barrel in London yesterday. It doesn’t help that China and the U.S. both show anemic signs of a recovery. And the U.S. Fed is still dithering over what to do with the stimulus program.
Bear in mind that much of the world’s consumption of oil remains borne on the shoulders of the Chinese—demand in that country this year will increase by around 380,000 barrels per day. That’s an increase of 3.9 percent to nearly 10 million a day.
Coinciding with the IEA’s reduced projections, OPEC, too, cut its estimate for growth in worldwide oil demand. According to the group, oil consumption this year could rise by 800,000 barrels per day, or 0.9 percent. That’s a shift down from last month’s figures, which projected increases of 840,000 barrels per day. Thus, against last year’s 88.87 million barrels per day, we’re likely to see an increase to 89.66 barrels per day through 2013.
Bloomberg quotes from the OPEC report:
“Demand in the second half of this year is seen to be much higher than the first,” OPEC said. “The bulk of the growth is expected to come from China.”
On the flip side, Saudi Arabia has decided to bump production levels back up to 9.3 million barrels per day—that’s an increase of about 50,000 barrels per day from February’s levels.
OPEC production overall dropped to 30.44 barrels per day (a decline of 140,000 barrels per day). This was largely a consequence of decreased output from several countries, including Iraq, Iran, Nigeria, Libya, and Algeria.
And production estimates exclusive of OPEC were also revised downward by the IEA, by about 20,000 barrels per day. However, producers like the U.S., Canada, and Brazil are likely to raise their supplies over 2013 by about 1.1 million barrels per day to a total of 54.4 million barrels per day.
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A Different Story in North America
The real question, though, is how the ongoing oil and gas boom in North America could shift the balance among these worldwide factors.
Take the Permian Basin in West Texas, for example. The Basin has produced some 32 billion barrels of oil since 1921. But when the Cline Shale was discovered recently in the Permian area, expectations rose significantly—to the tune of another possible 32 billion barrels or more.
Combined with the ever-increasing efficiencies in oil drilling and refining technologies, we’re clearly looking at a major renaissance in American oil. The EIA reported in January of this year that Texas was producing some 2.26 million barrels per day that month.
In other words, Texas was producing more oil than Algeria, Libya, Ecuador, and several other OPEC members. In fact, those numbers keep rising, and the gap between production levels in the UAE, Kuwait, and Texas alone is closing fast.
Right now, the U.S. is in a position where oil and natural gas production levels with some 400 oil rigs exceeds levels achieved back in 2008 with more than 1,600 rigs – four times today’s amount. It’s a mix of striking shale reserves and advancing technologies.
And the various big-name shale reserves—the Marsellus, Utica, and others—are nowhere near depleted. In fact, we’ve barely begun. It’s impossible that such dramatic levels of production won’t influence OPEC’s position.
Besides, other countries across Asia and Europe are working to emulate the North American shale dream. Therefore, despite lowered forecasts by OPEC and IEA, it’s very unlikely that we’ll see the end of oil anytime soon. Rather, we’ll likely see a dramatic shift in the balance of the world’s oil game—and that balance looks like it’ll favor North America.
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