International oil market conditions tightened dramatically in the last year as supply disruptions in Libya and elsewhere drew down commercial and strategic reserves, but the outlook for oil production appears to be improving, according to the Energy Information Administration's (EIA) November 2011 Short-Term Energy Outlook, which was released yesterday.
EIA expects both Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC crude oil and other liquid supply to grow through 2012. Non-OPEC supply shows relatively robust growth in the fourth quarter of 2011 compared to the third quarter, thanks primarily to a projected 230,000 barrel per day (bbl/d) increase in U.S. crude production over that period. North Sea production is also expected to show a 230,000 bbl/d recovery in the fourth quarter. On the OPEC front, Libyan production is gradually returning to the market. Libyan crude oil exports resumed at the end of September 2011, with initial exports averaging 200,000 bbl/d. EIA expects Libyan crude oil exports to rise to 350,000 bbl/d during the first quarter of 2012, reaching 800,000 bbl/d by the end of 2012.
Combined with a more subdued demand growth outlook than previously forecast due to slower economic growth, the ramp up in global oil production is expected to reduce the "call on OPEC," or the amount of crude needed from OPEC producers or from inventories to meet projected demand, by about 340,000 bbl/d from the third to fourth quarter. That would be a reversal from the trend shown earlier this year, when the market faced unexpected tightness after unrest in Libya curtailed output, shutting in roughly 1.5 million bbl/d of exports. As a result, crude importers had to rely more heavily on stock draws and production from other OPEC suppliers to balance demand.
Thanks to easing market conditions, the EIA now expects the average cost U.S. refiners pay for crude oil to decline, albeit marginally, to an average $100 per barrel in the fourth quarter, compared to $101 per barrel in the third quarter. Oil inventories are also expected to stabilize somewhat after sharply tightening since mid-2010. Commercial crude stocks in Organization for Economic Cooperation and Development (OECD) member countries showed a build of 10.5 million barrels in the third quarter, compared with an average 32 million barrel increase for the same period in the last 5 years. Earlier, OECD stocks had declined by roughly 80 million barrels from end-June 2010 to end-June 2011, the steepest such annual decline since end-June 2002 to end-June 2003, when war in Iraq, a general strike in Venezuela and fighting in Nigeria had conspired to deplete inventories. The latest declines left OECD commercial stocks at the onset of the fourth quarter 2011 at an estimated 21-million-barrel deficit compared to the previous 5-year average.