?The International Energy Administration’s medium-term outlook suggests that non-OPEC oil supply growth is “drowning and not waving.”
“If anything, our view is that the outlook is even grimmer,” says Barclays Capital analyst Paul Horsnell, working with Costanza Jacazio and Kevin Norrish. The report was released against the backdrop of the recent World Petroleum Congress, which met in Madrid.
He says that after years of systematically over-estimating the potential for non-OPEC supply growth, the IEA has concluded that it looks to be dead in the water.
The IEA places growth in daily non-OPEC supply at just 0.62 million barrels in 2009, decelerating sharply to 0.06 million barrels in 2010, 0.08 million in 2011, and then not growing at all in 2012.
“Given the past record of IEA supply projections, one would have to say that the chances of actual non-OPEC supply in 2012 being lower than in 2008 would appear to be pretty high,” Horsnell says.
“Further, those figures are for all non-OPEC supplies, including biofuels, refinery processing gains and oil sands. Take out the biofuels, and non-OPEC oil supply looks extremely weak indeed.”
Horsnell says he and the other analysts are not even convinced that the gains in biofuels projected by the IEA are likely to materialize.
While in Madrid the IEA reports that biofuels cannot be blamed for all the increase in grain prices.
“We would note that they can, in our view, be blamed for some of that increase,” Horsnell says. “Having 33% of U.S. corn output going into ethanol can hardly be expected to be price neutral, and higher corn prices in particular do seem to imply that on most economic and moral grounds this might not be the best time to look to a massive expansion of biofuels for the bulk of oil supply growth.”
The short-term IEA numbers are still looking for a huge 1.9-million-barrel-per-day upswing in non-OPEC supply between the second and fourth quarter, he says.
“In our view, the data is still not really stacking up in that direction.” He adds that the recent Russian monthly output numbers revealed the sixth straight year-over-year fall in output, amounting to a decrease for the year to date with Russia bouncing back.
“We would demur from that view, and we believe that non-OPEC supply is already drowning and not waving. We will be revealing our detailed 2009 non-OPEC figures over the next few weeks, but suffice to say at this stage that it looks pretty grim. In all, in our view, it is perhaps time for the hold-outs among the major international oil companies to open their eyes, and to check again if the future really is business as usual.”
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