The EIA's Latest Short-Term Energy Outlook

The U.S. government's Energy Information Agency released its latest Short-Term Energy Outlook today. Here are a few excerpts:

Demand

World oil consumption continues to grow despite 7 consecutive years of rising prices. Preliminary data indicate that world oil consumption during the first half of 2008 rose by roughly 520,000 bbl/d compared with year-earlier levels. Compared to year-ago levels, this increase reflects a 170,000-bbl/d gain in the first quarter, followed by an 870,000-bbl/d increase in the second quarter. A 760,000-bbl/d decline in consumption in OECD countries during the first half of 2008, mainly concentrated in the United States, was more than offset by a 1.3-million-bbl/d increase in consumption in non-OECD nations led by China and the Middle East (World Oil Consumption). World oil consumption is projected to rise by almost 1.2 million bbl/d during the second half of the year, reflecting the impact of higher expected prices, lower economic growth, and growing pressure in some countries (such as India, Malaysia, Indonesia, and China) to ease price subsidies, which could dampen consumption growth.

Supply


Non-OPEC Supply

Despite higher prices and recent past projections of substantial growth in non-OPEC supplies that matched or exceeded consumption growth, actual non-OPEC production fell far short of both expectations and consumption growth. Faster declines in older fields and delays in expansion projects have limited supply growth. At the beginning of this year, non-OPEC supply growth was projected to rise by 860,000 bbl/d in 2008 and by over 1.5 million bbl/d in 2009. Production is now expected to rise by only 230,000 bbl/d in 2008 and by 830,000 bbl/d in 2009. Lower-than-expected production from Russia and the North Sea, along with lowered expectations for Brazil, are the principal reasons for lower non-OPEC supply levels. Second-half 2008 non-OPEC supply is expected to increase by about 700,000 bbl/d, driven by growth in Brazil and Azerbaijan (Non-OPEC Oil Production Growth).

OPEC Supply

OPEC crude production in the second quarter of 2008 averaged an estimated 32.3 million bbl/d, up only slightly from 32.2 million bbl/d in the first quarter. Higher production in Iraq and Angola more than offset lower production in Nigeria caused by security problems and worker strikes. Assuming that Saudi Arabia’s announcement of raising July output to 9.7 million bbl/d results in a higher sustained rate of production through at least September, OPEC crude production is projected to average 32.7 million bbl/d during the third quarter. At these production levels, available surplus production capacity during the third quarter would be only 1.2 million bbl/d, marking the third consecutive quarter that surplus capacity stood at or below 1.5 million bbl/d. All of this capacity is held by Saudi Arabia (OPEC Surplus Oil Production Capacity). Any industry operating at close to 99 percent of capacity will remain vulnerable to surprises that either boost consumption or disrupt production. Such surprises would place additional upward pressure on prices and contribute to oil price volatility. In this tight global oil market, OPEC countries have also faced delays in adding new production capacity, notably in Algeria and in Saudi Arabia, whose 500,000 bbl/d Khursaniyah project has been pushed back to the end of 2008.