In general, the oil industry is expected to continue expanding, although growth rates across the board are still below the highs of 2004. The USA is expected to contribute to demand growth compared with the suppressed demand resulting from a mild first quarter. Economic growth in China and the Middle East are also expected to push up demand.
Meanwhile, supply is increasing to meet demand, mainly helped by projected new fields. This trend is expected to continue into 2007. Spare capacity remains weak, although it is hoped that this will improve by summer 2007.
DEMAND REBOUNDS AFTER SLOW FIRST QUARTER
Global oil product demand is expected to grow by 1.2mb/d (1.4%) in 2006 to 84.8mb/d. For 2007, demand should expand by 1.6mb/d (1.8%) to 86.4mb/d, based on a continued robust global economic outlook and the rebound in North American and non-OECD Asian demand. Nevertheless, this is well below the exceptional growth of 3.2mb/d (4.0%) in 2004.
OECD oil product demand should expand by 0.1mb/d (0.3%) in 2006 to 49.7mb/d. For 2007, demand is expected to increase by 0.4mb/d (0.8%) to 50.0mb/d. North America will account for the bulk of demand growth, in part because temperatures were unusually mild in 1Q06.
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First quarter 2007 demand is expected to exceed the weather-affected 1Q06 baseline by some 800kb/d. By contrast, as Europe was unusually cold in 1Q06, its oil product demand is forecast to decline by 250kb/d in 1Q07.
CHINA AND MIDDLE EAST GROWTH SPUR DEMAND
Non-OECD oil product demand is projected to rise by 1.1mb/d (3.2%) in 2006 to 35.1mb/d. For 2007, demand is forecast to increase by 1.2mb/d (3.4%) to 36.3mb/d. China and the Middle East will continue to expand at a rapid rate, and non-OECD Asia will rebound from a relatively weak 2006.
Recent increases in administered retail prices in key consuming counties in non-OECD Asia temporarily slowed oil product demand growth, but growth should return as the region’s economies continue their rapid expansion. Overall, non-OECD demand will account for 75% of global demand growth in 2007.
Comparing the regions, China will see the fastest growth (5.5%) in 2007, closely followed by the Middle East (5.3%). North America accounts for the largest share of oil product consumption, representing 30.1% of total world demand, compared with 8.6% for China and 7.9% for the Middle East.
However, North America will account for only 25% of global demand growth in 2007, while China and the Middle East will account for almost half of global growth (46%).
NEW FIELDS DRIVE SUPPLY GROWTH
Non-OPEC oil supply growth in 2007 is projected to accelerate to 1.7mb/d, taking total supply to 53.0mb/d. This compares with anticipated growth of 1.1mb/d in 2006 and a non-OPEC total of 51.3mb/d.
Growth is concentrated in the second half of 2006 and the first half of 2007. This reflects not only the spike in the expected new field start-ups, but also the predicted rebound from the depressed supply levels evident in the corresponding periods of 2005 and 2006.
The FSU and Africa will generate a combined 60% of total non-OPEC growth in 2007, with the Americas providing a further 30%. The North Sea and OECD Pacific will also see a temporary respite in 2007 after recent sharp declines.
OPEC gas liquids and non-conventional supply will continue to show robust growth in 2007. Baseline supplies for 2005/06 have been revised up by some 270kb/d, with this year’s total now 4.7mb/d.
Growth in 2007 amounts to 280kb/d, similar to the expected 2006 increment. Qatar provides 9kb/d of next year’s increase, while Algeria, Iran, Saudi Arabia and the UAE each account for 20–40kb/d of growth.
REVISED SUPPLY SHOWS SUSTAINED GROWTH
World oil supply in June 2006 gained 315kb/d from May 2006 to average 85.2mb/d. This was 715kb/d higher than June 2005, with OECD production down by 620kb/d, OPEC total oil supply up 225kb/d and non-OECD plus other supplies running 1.1mb/d higher compared to 2005.
Month-on-month gains in June came from the US GOM, Canada, Russia, Azerbaijan, China and Sudan, while North Sea maintenance trimmed European supply by 175kb/d. OPEC crude supply was 200kb/d higher than in May, largely due to renewed exports from northern Iraq.
Non-OPEC supply (now including global biofuels) projections for 2006 have been revised up by 90kb/d to 51.3mb/d. This is the result of the inclusion of 155kb/d of biofuels supply not previously included in OMR balances.
Otherwise, conventional oil supply estimates for 2006 are trimmed by 65kb/d. Weaker assessments for Angolan and Canadian output and for Malaysian NGL supply outstrip upward revisions for the USA, Mexico and the UK.
OPEC crude supply for June has been revised up by 200kb/d from May to 29.8mb/d. Rising supply from Iraq accounted for 160kb/d of the increase, while Nigeria, Iran and Saudi Arabia also saw supply nudge higher from recently suppressed levels.
Maintenance work and field outages saw production from Algeria, Indonesia, UAE and Venezuela fall by a collective 155kb/d. Supply during May has been revised downwards to 230kb/d, mainly due to Iran, Nigeria, Saudi Arabia and Algeria.
SPARE CAPACITY REMAINS WEAK
June OPEC spare capacity came to 3.0mb/d, although effective spare capacity, excluding Indonesia, Iraq, Nigeria and Venezuela, is closer to 2.0mb/d. Over 500kb/d of Nigerian capacity remains shut in due to security concerns and pipeline outages in the Niger Delta.
Furthermore, global refinery upgrading constraints suggest that real OPEC spare capacity at times may be lower still. Nonetheless, OPEC capacity could increase to 33.1mb/d by the end of 2006 from 32.8mb/d in the summer.
The ‘call on OPEC crude and stock change’ for 2006 is revised down by 0.5mb/d to 28.8mb/d after incorporating global biofuel supply estimates and weaker OECD demand.
However, the call can be seen rising progressively through the rest of this year to 29.1mb/d by the 4Q. Strong non-OPEC supply and OPEC gas liquids growth in 2007 exceed expected 1.6mb/d demand growth, leading to slippage in the call to 28.4mb/d.
However, a higher call is possible if adjustments are made for downside non-OPEC supply risk and the miscellaneous-to-balance factor.