The U.S. Energy Information Administration reported that tight fundamentals, reflected by low available crude oil surplus production capacity, combined with supply concerns in several oil exporting countries, have continued to put upward pressure on world crude oil prices. The outlook over the next 2 years points to some easing of the oil market balance due to increased production outside of the Organization of the Petroleum Exporting Countries (OPEC) and planned additions to OPEC capacity.
However, delays to capacity additions in both OPEC and non-OPEC nations could alter the outlook, as could OPEC production decisions.
WTI averaged $95 per barrel in February and is expected to average $102 in March (the spot price of WTI closed at nearly $108 per barrel on March 10, 2008 but is expected to decrease over the second half of the month). The annual average WTI price, which was $72 per barrel in 2007, is projected to average $94 per barrel in 2008, but ease somewhat to about $86 per barrel in 2009.
About 0.7 million bbl/d of non-OPEC supply growth is projected in 2008, revised down by 0.2 million bbl/d from the last Outlook. This change represents a revision to expected project schedules as well as a re-evaluation of decline rates at existing fields. Brazil is expected to account for about half of the expected gain in non-OPEC supply in 2008. Azerbaijan, Sudan, and Russia are also expected to record net additions to capacity, while the United Kingdom, Mexico, and Norway are among countries expected to experience declines.
The pace and timing of non-OPEC supply growth will continue to be subject to possible delays in key projects. EIA's Outlook incorporates an expectation of some further delays. As a result, uncertainty about non-OPEC supply growth introduces both upside and downside risk to our price outlook.
EIA projects that OPEC crude oil production will average about 32.2 million bbl/d during the first quarter of 2008, or about 0.6 million bbl/d above fourth quarter 2007 levels. The increase mainly reflects higher production from Saudi Arabia, Angola, and the United Arab Emirates. Based on EIA projections of consumption and non-OPEC supply, OPEC crude production is expected to average slightly above first quarter levels for the remainder of the year.
If consumption rises more slowly than expected and OECD inventories climb relative to the 5-year average, OPEC members would be likely to consider holding their output below our projected level. Based on country plans, EIA expects OPEC crude production capacity to rise in 2008 by 1.2 million bbl/d and by 0.8 million bbl/d in 2009. OPEC's non-crude liquids production is also expected to increase by about 0.3 million bbl/d in 2008 and by 0.8 million bbl/d in 2009.
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