SHORT-TERM ENERGY OUTLOOK: Global Crude Oil and Liquid Fuels

http://www.eia.gov/forecasts/steo/report/global_oil.cfm

SHORT-TERM ENERGY OUTLOOK
Release Date: December 10, 2013 | Next Release Date: January 7, 2014 | Full Report | Text Only | All Tables | All Figures

Global Crude Oil and Liquid Fuels

Global Crude Oil and Liquid Fuels Overview

Total global liquid fuels production was 90.6 million bbl/d in November, 0.9 million bbl/d higher than in November 2012. Crude oil production by members of the Organization of the Petroleum Exporting Countries (OPEC) averaged 29.3 million bbl/d in November, the lowest level in more than two years. Continued unrest in Libya and, to a lesser extent, routine maintenance and ongoing supply disruptions in Nigeria constrained OPEC crude oil production. Unplanned supply outages among OPEC members rose to 2.5 million bbl/d in November, accounting for more than 80% of global outages. Global supply disruptions remained above 3.0 million bbl/d in November for the fourth month in a row.

Non-OPEC countries produced 55.3 million bbl/d of liquid fuels in November, 1.7 million bbl/d higher than in November 2012. EIA projects continued non-OPEC liquid fuels production growth in 2014 of 1.8 million bbl/d, contributing to a decline in the call on OPEC crude oil and stocks (world consumption less non-OPEC production and OPEC non-crude oil production).

EIA's forecast of Iran's crude oil production remains unchanged. Since the announcement of a Joint Plan of Action (JPA) between Iran and the five permanent members of the United Nations Security Council plus Germany (P5+1) does not remove the existing sanctions affecting Iranian crude oil sales, EIA did not adjust its outlook on Iran's crude oil supply. EIA will continue to monitor and evaluate the situation, which could be affected by any future agreement that is reached between Iran and the P5+1.

Global Liquid Fuels Consumption

EIA projects global consumption to grow annually by 1.1 million bbl/d in 2013 and 1.2 million bbl/d in 2014, from a base of 89.2 million bbl/d in 2012. China, the Middle East, Central & South America, and other countries outside of the Organization for Economic Cooperation and Development (OECD) will account for nearly all consumption growth over the forecast period. EIA expects OECD liquid fuels consumption in 2013 to remain at its 2012 level and then decline by 0.1 million bbl/d in 2014.

Non-OECD Asia, particularly China, is the leading contributor to projected global consumption growth. China's economic growth after 2011 remains strong but more moderate, compared with the preceding decade, leading to smaller increases in liquids fuel consumption in 2013 and 2014. EIA estimates that China's liquid fuels consumption will be 380,000 bbl/d higher in 2013 than it was in 2012 and projects an additional increase of 400,000 bbl/d in 2014.

Non-OPEC Supply

EIA estimates that non-OPEC liquid fuels production averaged 55.3 million bbl/d in November, up 0.3 million bbl/d from October. EIA projects non-OPEC supply will average 54.2 million bbl/d in 2013 and 55.9 million bbl/d in 2014. Growing non-OPEC liquid fuels production will contribute to a declining call on OPEC crude oil, from an average of 30.3 million bbl/d in 2013 to 29.4 million bbl/d in 2014.

EIA estimates the greatest non-OPEC supply growth will be in North America, where projected liquid fuels production increases by 1.5 million bbl/d in 2013 and another 1.3 million bbl/d in 2014. The majority of the production growth is from U.S. onshore tight oil formations and Canadian oil sands. EIA expects smaller production growth from a number of other areas, including Africa, Central & South America, and Asia & Oceania.

Of the 3.0 million bbl/d of global unplanned supply disruptions in November, approximately 0.5 million bbl/d occurred among non-OPEC producers, which saw a decrease of nearly 0.2 million bbl/d in outages compared with October. Disrupted volumes in Brazil, Canada, and the United States all returned by November, driving the decline in total non-OPEC outages. Syria accounted for more than half of all unplanned outages in non-OPEC countries.

OPEC Supply

EIA expects total OPEC liquid fuels production to decline by 0.8 million bbl/d in 2013 to an average of 35.9 million bbl/d and projects another 0.6-million-bbl/d decline in 2014. The declines in 2013 mostly reflect supply outages among some OPEC producers, along with lower production by Saudi Arabia during the first half of 2013. EIA expects supply disruptions in Libya to persist through 2014, keeping around 1 million bbl/d off the global oil market.

The JPA between Iran and members of the P5+1 group will not affect OPEC's output, as the sanctions affecting Iran's oil sector remain in place. EIA's forecast of Iran's crude oil production remains unchanged because the JPA with Iran and the P5+1 group does not directly allow for additional Iranian oil sales. The JPA does suspend sanctions on associated insurance and transportation services; however, EIA expects limited short-term effects on Iranian oil exports.

Total OPEC crude oil unplanned disruptions in November averaged 2.5 million bbl/d, a small increase over October's 2.3 million bbl/d. Supply disruptions in Libya increased to nearly 1.4 million bbl/d in November, the highest level since the Libyan civil war in 2011. In Iraq, unplanned supply disruptions fell below 0.2 million bbl/d in November, as attacks on the Kirkuk-Ceyhan pipeline between Iraq and Turkey decreased.

EIA projects total OPEC surplus crude oil production capacity in the fourth quarter of 2013 to be 2.2 million bbl/d, which is 0.5 million bbl/d above the average from the third quarter of 2013 and 0.2 million bbl/d lower than the fourth quarter of 2012. EIA projects OPEC surplus crude oil production capacity will reach 4.2 million bbl/d in the fourth quarter of 2014 and average 3.2 million bbl/d for the year, an increase of 1.1 million bbl/d over the estimated 2013 average. These estimates do not include additional capacity that may be available in Iran but is currently offline because of the effects of U.S. and European Union sanctions on Iran's oil sector.

OECD Petroleum Inventories

EIA estimates that OECD commercial inventories at the end of 2012 totaled 2.6 billion barrels, equivalent to 57.7 days of supply. EIA projects OECD inventories to be 2.6 billion barrels at the end of both 2013 and 2014.

Crude Oil Prices

Brent crude oil spot prices fell from a monthly average of $112 per barrel in September 2013 to $108 per barrel in November. EIA expects the Brent crude oil price to continue to weaken as non-OPEC supply growth exceeds growth in world consumption. The Brent crude oil price is projected to average $108 per barrel in December 2013 and $104 per barrel in 2014.

The forecast WTI crude oil spot price, which averaged $106 per barrel during September, fell to an average of $94 per barrel in November. EIA expects that WTI crude oil prices will average $96 per barrel during the fourth quarter of 2013 and $95 per barrel during 2014. The discount of WTI crude oil to Brent crude oil, which averaged $18 per barrel in 2012 and then fell to below $4 per barrel in July 2013, averaged $14 per barrel during November. EIA expects the WTI discount to average $12 per barrel during the fourth quarter of 2013 and $9 per barrel during 2014, as new pipeline capacity is added from Cushing to the Gulf Coast.

In addition to an increase in the WTI discount to Brent, U.S. Gulf Coast crude oil grades reached record discounts to international benchmarks in November. Prior to this autumn, discounted crude oil prices had generally been limited to the U.S. Midcontinent, where crude oil production growth had outpaced the capacity of pipeline infrastructure to bring that production to refining centers on the U.S. Gulf Coast. However, pipeline capacity expansions and pipeline reversals have alleviated transportation bottlenecks from the Midcontinent to the Gulf Coast for the time being, causing greater convergence of LLS and WTI prices. This additional infrastructure, continued growth in U.S. light crude oil production, and a seasonal decline in crude oil runs at U.S. Gulf Coast refineries resulted in increases in the net availability of domestic crude oil in the U.S. Gulf Coast. This situation is applying downward pressure to crude oil prices in the U.S. Gulf Coast market, which requires increasingly fewer crude oil imports to balance. The spot discount of LLS, a key Gulf Coast light sweet crude oil grade, to Brent increased from an average of $3 per barrel in September to almost $11 per barrel in November. Likewise, the discount of the Mars spot price, a medium Gulf Coast crude oil grade, to international marker Dubai increased from an average of $4 per barrel in September to $13 per barrel in November.

Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the forecast levels (Market Prices and Uncertainty Report). WTI futures contracts for March 2014 delivery traded during the five-day period ending December 5, 2013, averaged $96 per barrel. Implied volatility averaged 19%, establishing the lower and upper limits of the 95% confidence interval for the market's expectations of monthly average WTI prices in March 2014 at $82 per barrel and $112 per barrel, respectively. Last year at this time, WTI for March 2013 delivery averaged $89 per barrel and implied volatility averaged 28%. The corresponding lower and upper limits of the 95% confidence interval were $71 per barrel and $113 per barrel.

http://www.eia.gov/forecasts/steo/report/global_oil.cfm