OIL MARKETS
800 kb/d YoY. Challenges at new greenfield projects, disruptions at existing fields and tightening corn and sugar balances have collectively played a role in slashing the IEA’s growth estimate to only 400 kb/d. We are less optimistic – modelling growth of only 80 kb/d in 2011 – and have been since the end of 2010. Since 2002, oil prices have more
than tripled yet non-OPEC supply has struggled to grow. Total non-OPEC supply grew by a mere 4.0 mmb/d between 2002 and year-end 2010, and of this growth more than 70% was from unconventional sources (mainly biofuels) and NGLs. For some context, China’s oil demand alone has grown by 4.0 mmb/d in the same period (Figure 3). As we look out to 2015, we expect non-OPEC supply growth to remain stagnant. Despite a number of new projects and brownfield expansions
Figure 3: Supply Did Not Respond to Higher Prices Indexed Jan 2002 = 100
300 250 200 150 100 50 Sources: IEA, Morgan Stanley Commodity Research
through 2015. Critically, this forecast hinges on Iraq growing its production to 4.0 mmb/d (+1.4 mmb/d), a less than certain assumption. In aggregate, we see total available supply (assuming OPEC
Total non-OPEC supply grew by a mere 4.0 mmb/d between 2002 and year-end 2010 [mainly unconventionals]
(we count over 19.0 mmb/d of gross volume being added between now and 2015), new growth seems likely to fall short of declines from existing, mature basins (Figure 4). Turning to OPEC, the supply
picture is not much brighter. We forecast OPEC crude capacity will grow by 0.5 mmb/d, to 35.6 mmb/d,
exhausts spare capacity) higher by only 1.1 mmb/d by end- 2015, which drives our view that higher prices are necessary (if not inevitable) in an environment where GDP is growing. Said differently, demand growth needs to be contained owing to the lack of available supply – and price is the mechanism to do this.
The oil burden, [defined as the (oil price X global oil demand)/
global GDP] is a simple, but seemingly effective metric to watch in addressing demand rationing. History shows that the global economy, and particularly the OECD, tends to sputter at an oil burden above 4% – the Arab oil embargo in the early 1970s and the Iran-Iraq war in the late 1970s/early 1980s both saw oil prices (and the burden) move higher, which ultimately contributed to slowing economic growth and oil demand. A rising burden in 2008 also played a role in harming growth,
Figure 4: Gross Adds to Production Seem Plentiful Crude, NGLs & Biofuels – Gross Additions to Capacity (mmb/d) OPEC
2.5 Non-OPEC 2.0 1.5 1.0 0.5 0 2011 2012 2013 2014 2015 Sources: Company data, IEA, Morgan Stanley Commodity Research estimates 38 September 2011
0.2 0.4 0.6 0.8 1.0
-1.0 -0.8 -0.6 -0.4 -0.2 0
2011 2012 2013
... But Not Enough to Offset Declines Crude, NGLs & Biofuels – Net Additions to Capacity (mmb/d)
Non Conventionals - 3.8 mmb/d NGLs - 12.2 mmb/d
Opec Crude - 30.1 mmb/d Non-Opec Crude - 42.7 mmb/d
Total Non-OPEC OPEC
2014 2015
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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