(EnergyAsia, March 8 2013, Friday) — Global oil demand will grow at a “robust” rate of nearly 1.4% per year through 2017 while production will increasingly run into constraints as non-OPEC supply peaks out in 2015 and OPEC members reduce exports to meet rising domestic demand, said Bank of America Merrill Lynch (BoAML) in a detailed research report on the world’s oil balance.
The result is Brent crude price staying strong to average between US$100 and US$130 per barrel through 2015 and capped at US$175 in 2017 while staying supported by a “strong floor” price of US$80 per barrel throughout the five-year period. The oil markets have already shown their underlying strength the last two years with Brent averaging US$110 per barrel despite the weak and uncertain conditions in the developed economies.
In the report, BoAML is forecasting global demand to rise from 89.8 million b/d in 2012 to 96.1 million b/d in 2017, with emerging economies providing all the growth to offset declines in the developed markets.
Most of the forecast growth in that five-year period will take place from 2014 to 2017, with demand seen rising by 1.3 million b/d on average, boosted by a projected 4% to 4.5% expansion in the world economy.
In contrast, world oil demand will rise by just 940,000 b/d this year. From 2011 to 2013, BoAML said oil demand growth will be held back by high debt levels in the developed markets, a subdued US recovery and a double dip recession in Europe.
The bank said Brent crude prices are unlikely to fall to an average of less than US$80 per barrel due to rising production costs for marginal projects in non-OPEC areas, rising government budget breakeven levels for key OPEC countries, and price elasticity of demand which suggests consumption would increase strongly at such low prices. Oil will also be supported by the continuing monetary easing policies of the US Federal Reserves and the world’s major central banks.
In the US, however, surging shale output and a lack of export opportunities create a risk of the benchmark WTI crude plunging to US$50 per barrel over the next 18 to 24 months.
BoAML expects non-OPEC oil supply to grow by a cumulative 3.9 million b/d from 2012 to 2017, with the US contributing the lion’s share of 3.1 million b/d, supported by small additions from Canada and Brazil.
“From 2014-17, we see non-OPEC outside North America making small contributions to total non-OPEC supply growth,” it said.
“While North America has been experiencing an unprecedented boom in oil production, the rest of non-OPEC has been beset by systematic disruptions linked to geopolitical turmoil, labor unrest and technical problems. The conflict between Sudan and South Sudan combined with disruptions in Syria and Yemen alone dragged down non-OPEC supplies by an average of 550 thousand b/d last year. In the North Sea, unpredictable outages reduced supplies by a further 310,000 b/d. All in, these disruptions took out nearly one million b/d of supply last year.”
After three years of growth, the bank expects non-OPEC supply expansion to peak at 950,000 b/d in 2015 before trending lower in 2016 and 2017.
“This trajectory largely stems from US shale oil and deep-water Gulf of Mexico (GOM) production contributing smaller incremental volumes,” it said.
“With nearly every other region steadily in decline, our outlook on non-OPEC oil supply growth post 2015 is turning more cautious.”
The report also warned of the continuing threats to existing non-OPEC supply in from geopolitical risks in the Middle East and Africa as well as the rapid depletion of producing fields.
“In Sudan and South Sudan, border security and oil transit talks continue to fail and we remain conservative about the recovery of volumes through the medium term. In Yemen and Syria, we see output continue to suffer from ongoing attacks on infrastructure and political unrest,” it said.
The bank estimates that since 2003, depletion of non-OPEC oil fields have accelerated to 4.25%, compared to 4.16% in its previous report last year. The latest assessment is based on an analysis of figures from the International Energy Agency’s field-by-field database.
“This is the first time we have seen decline rates worsen on a cumulative basis since 2009,” said BoAML.
“Our analysis also suggests that for fields that started after 2002, output continued to fall at a very fast pace of 15%, compared to about 7% for fields that started after 1998 and 4% for fields that started prior. Meanwhile, larger fields continued to decline at nearly half the rate of smaller ones, with fields whose peak production is greater than 150,000 b/d falling by an average of 3.5-4% compared to 8% for fields with peak rates below 50,000 b/d.”
The bank also took note of the impact of rising oil consumption in the Middle East on the global supply picture.
Over the last decade, the region’s oil use has risen by an average 250,000 b/d per year or an average 4.1% per year, making it the second fastest growing market after China.
“Oil demand growth in Saudi Arabia rivals and often exceeds that of other emerging markets like India, Brazil and Russia. Overall, the Middle East now accounts for about 8.3% of global oil demand but just 3.3% of global GDP. The region (now) accounts for nearly 30% of global oil demand growth,” it said.
Saudi consumption has nearly doubled to three million b/d between 2000 and 2012, while Iraq’s oil demand has been growing since 2007 to reach a record high of 740,000 b/d last year.
At the same time, BoAML noted OPEC’s “lack of new projects” to expand production capacity over the next five years.
It said Kuwait, Qatar and Ecuador have no new projects at all, as will Algeria during the second half of the review period. Venezuela has just started new volumes from the Orinoco belt after years of delays, but with ongoing financial constraints and chronic delays, ramp-up will likely be slow and gradual. The report was published before the death of President Hugo Chavez on March 5.