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OPEC Flags Risks to Global Supply Growth

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LONDON - The Organization of the Petroleum Exporting Countries Tuesday warned that expectations of growth in non-OPEC oil supply this year, seen as essential to meeting global oil demand in the long term, face significant stumbling blocks.

"A high level of risk is associated with non-OPEC supply forecasts on political, price, economic, weather, environmental and geological factors," the group of major oil producers said in its monthly oil market report.

Non-OPEC supply growth is projected to increase by almost 1 million barrels a day this year, largely due to a boom in production in the U.S.--the result of technology that has made it possible to release large reserves of oil trapped in shale rock.

The output growth in America is a boon to consumers there who already benefit from lower oil prices compared with elsewhere, but for OPEC it has significant implications for the group's historical dominance in the oil market.

In a landmark study last October, the International Energy Agency forecast that by 2020 U.S. oil output could overtake that of OPEC's kingpin, Saudi Arabia. According to the IEA's forecast, the increase in U.S. output will force OPEC members to adapt rapidly to changing trade patterns, and potentially even put them in competition with North American oil exports.

In its report Tuesday, OPEC said it expects demand for its crude to fall by 300,000 barrels a day in 2013 compared with last year.

Although OPEC initially said it wasn't concerned by the shale-oil boom, it has since warned that forecasts of rising U.S. oil production could curtail its own investment in maintaining output.

"If the [IEA] estimates for U.S. production are not met," that "could trigger the possibility of oil shortages and higher prices" as producers could have cut their investment based on these forecasts, OPEC Secretary General Abdalla Salem el-Badri said in an interview in November following the release of the IEA's report.

In its latest report, the group of major oil producers forecast the shale boom in the U.S. would help increase oil production by 520,000 barrels a day this year, giving the U.S. the highest production growth among the non-OPEC countries, but it also played down the positive side of these developments by warning of the challenges facing the industry.

"There are remaining risks associated with the growth forecast on the back of weather, technical, environmental and price factors," the report said. It said that the heavy decline rate associated with the first year of shale oil production from individual wells in the first year was a major factor that could impact growth.

The group projected U.S. production would rise to 10.6 million barrels a day in the fourth quarter from 10.42 million barrels a day in the first quarter of this year.

Overall, OPEC forecast that non-OPEC supply would increase by 940,000 barrels a day this year to 53.9 million barrels a day, driven primarily by growth in the U.S., Canada, Latin America and the Former Soviet Union.

It also highlighted risks to supply growth in Canada, Australia, Latin America and Russia, though the growth projections for these countries pale in comparison to the rapid production increase expected in the U.S.

Data from secondary sources showed that output from OPEC member countries declined in recent months.

Oil production by members of the group fell to its lowest level since October 2011 last month as the price for the group's oil benchmark rose to settle at $109.28 a barrel, its highest monthly average since September 2012.

The decline in production was primarily the result of lower output from Saudi Arabia, Nigeria and Algeria but was offset slightly by higher production from Angola.

Benoit Faucon in London contributed to this article.

Copyright (c) 2012 Dow Jones & Company, Inc.

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