IEA says call on OPEC oil to rise slowly over next five years




By Margaret McQuaile in London


October 12, 2012 - Rising production from independent producers will account for the bulk of the 6 million b/d growth in world oil demand over the next five years, leaving the call on the OPEC oil cartel to grow by just 860,000 b/d over the forecast period, the International Energy Agency said October 12 in its latest medium-term oil market outlook.


World oil demand is set to grow steadily from 89.79 million b/d in 2012 to 95.68 million b/d in 2017, an increase of 5.99 million b/d over the five years. But non-OPEC oil production is also expected to increase steadily over the forecast period, from 53.22 million b/d this year to 57.53 million b/d in 2017, an increment of 4.31 million b/d.


This will leave demand for OPEC crude, plus movements in and out of stocks, rising from 30.35 million b/d in 2012 to 31.21 million b/d in 2017.


The call climbs above 31 million b/d only in 2017.

"In contrast, last year's [medium-term report] foresaw a call of 32.5 million b/d by 2016," the IEA said.


OPEC production capacity, however, is expected to rise from 35 million b/d in 2012 to 37.54 million b/d in 2017, the capacity growth of 2.54 vastly outstripping the 860,000 b/d growth in demand for OPEC crude over the five years.


The IEA expects OPEC's surplus capacity to rise from 4.65 million b/d in 2012 to 6.34 million b/d in five years' time. But it says that notional spare capacity historically has tended to average around 1 million b/d above the effective level of spare capacity, which it puts at 5.34 million b/d in 2017.


OPEC will see some growth in production of natural gas liquids and unconventional oil over the period, from 5.78 million b/d this year to 6.22 million b/d in 2017.


The IEA has shaved its world oil demand estimates compared with its previous medium-term report of June 2011 and an update in December, citing sluggish economic growth and increasing energy efficiency, and the "transformative power" of non-conventional oil production technologies which have exceeded earlier expectations when applied in shale and tight formations in North America.


OPEC spare capacity


"With downwardly revised demand projections and the promise of new supplies, the 'call on OPEC' has been trimmed and OPEC spare capacity looks set to return to more comfortable levels than recent years," the agency said.


"But this mild outlook is partly deceptive, given exceptional uncertainty about the global economy and heightened regional geopolitical risks," it added.


The IEA noted that within OPEC, the recovery in Libyan crude production this year had defied expectations, Iraqi output had scaled new heights and OPEC kingpin Saudi Arabia had been producing at 30-year highs for most of this year.


Nevertheless, "an important takeaway from recent experience is that after a decade dominated by concerns about runaway demand growth, elevated supply-side risks have become a fact of life in the oil market," the agency said.


"Last year's string of supply disruptions, in Syria, Yemen, Sudan, the North Sea, Brazil and the Gulf of Mexico, illustrated the possibility of a 'perfect storm' of coincidental disruptions in many oil provinces. Even those realized disruptions, however, pale in comparison with the new threat of unrest and political turmoil spreading further at the heart of the Middle East producing region," it said.


"Effective levels of spare capacity, or the market's ability to mobilize and deploy the full extent of nominal OPEC capacity, also becomes somewhat more problematic in the context of the Iranian nuclear dispute," it said, though it added that a return to more comfortable levels of OPEC spare capacity suggested some insurance against elevated disruption risks.


The IEA sees Iran's production capacity declining by more than 30% by 2011 compared with 2011 levels as a result of expanded international sanctions that, it said, have withheld around 1 million b/d of third-quarter supply from international markets.


"With no end in sight to the Iranian dispute, this report assumes that current sanctions will remain in place for the duration of the forecast period, progressively eroding Iran's long-term production capacity," the IEA said.


"Yet the situation remains highly unpredictable and the sustainability of the sanctions over the longer term is evidently untested. Therefore, this should be understood as no more than a working assumption," it added.

 

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