As rapid as the stock decline might appear, it would likely have been even steeper absent the release of oil from International Energy Agency (IEA) strategic reserves in July and August and a significant ramp-up in Saudi production, which is estimated to have increased from 9.1 million barrels per day in the second quarter 2011 to an average 9.8 million barrels per day in the third quarter. This Week in Petroleum has previously discussed the impact of the IEA release's announcement ("Release of strategic crude oil and product reserves and the short-term outlook," July 13, 2011). July 13, 2011). A budding recovery in non-OPEC output also helped contain inventory draws, as did, at the margin, the fact that global demand grew more slowly than forecast. Estimated third-quarter production from non-OPEC countries averaged 52.3 million bbl/d, about 350,000 bbl/d per day higher than projected in the June STEO, as unexpectedly robust production from the United States and Mexico more than offset lower than expected North Sea and other OPEC non-crude liquids production. On the demand side, bumps on the road to economic recovery trimmed third-quarter global oil consumption by 320,000 bbl/d compared to the June STEO forecast.
The latest STEO takes into account those adjustments to third-quarter projections and carries them forward. For 2011 as a whole, EIA now projects total demand growth of 1.2 million bbl/d, 530,000 bbl/d less than in the June STEO. The EIA also expects U.S. onshore production growth to not only continue, but even accelerate.
Both upside and downside price risks loom large. Upside uncertainty to the crude oil price outlook remains mostly as a result of ongoing unrest in oil-producing regions. The potential for additional and worsening unrest in the Middle East and North Africa is a source of risk to both OPEC and non-OPEC supply. Product inventories in some markets also look on the tight side going into the winter (see This Week in Petroleum, "The Heating Oil Watch," November 2, 2011). On the other hand, downward price pressure exists because of continued lackluster economic growth, especially in advanced economies, as persistent fears about global recession, contagion effects of the debt crisis in the European Union, and other fiscal issues facing national governments raise questions about already weak forecasts in the OECD economies. On the supply side too, there may be downward price pressure if Libya is able to ramp up oil production and exports sooner than anticipated.