BMI View: Growing production in North America and Saudi Arabia will counteract the persistent supply issues in key producing regions. Combined with our more bearish oil consumption outlook for China for the year, the global oil market equilibrium shows a tentative surplus for 2014 onwards.
Our forecasts for global oil production present a mixed picture. On the one hand, over the previous quarter, we downgraded our 2014 forecasts for major producers like Libya and Nigeria; on the other hand, we also upgraded our forecasts for Saudi Arabia and North America, thus counter-balancing some of the declines. The net effect has been a gain of 368,000 b/d in global oil production.
On the consumption front, a downgrade in our China oil consumption forecasts has reduced the global oil consumption figure by 123,000 b/d.
The net effect from these changes is that our global oil market equilibrium for 2014 has shifted to a tentative surplus of 190,000 b/d, suggesting that on the whole the supply crunch in the global oil market is easing.
The above conclusion has to be nuanced, however, to take into account the imbalances of the global oil trade. Even though the US and Canada will be producing more crude oil than we were forecasting previously, the extra volumes will not plug the deficit left by the declines in Libya or Nigeria, since North American oil exports are currently limited. Therefore, even though the market will be in a surplus, there will still be tightness in certain areas.
| Tentative Recovery Unevenly Distributed |
|Global Oil Supply, Demand and Balance Forecast, 000s b/d|
Changes to our oil production forecasts over the quarter include:
More bullish: Bahrain, USA, Vietnam, Norway, Saudi Arabia, Canada;
More bearish: Libya, Ghana, Australia, Malaysia, Brazil, South Sudan, Kazakhstan, Egypt, Kuwait;
We revised up our forecasts for Saudi Arabia as the latest data from OPEC show that production in the first six months of 2014 was higher than the corresponding period last year. We forecast that 2014 oil production will reach 11.7mn b/d, up from our previous forecast of 11.3mn b/d.
| Ramping Up Again |
|Saudi Arabia Crude Oil Production, 000s b/d|
According to our forecasts, the boom in US unconventional production is set to continue; combined with higher output from the Gulf of Mexico (GoM) it will boost liquids production from 11.2mn barrels per day (b/d) in 2013 to 12.0mn b/d in 2014.
The upwardly revised forecasts from Saudi Arabia and the United States counter-act our more bearish forecasts for Libya, Ghana, Brazil and Kazakhstan, amongst others. In these producers, above-ground risks and technical problems are keeping production subdued and significantly delaying the ramp up in output.
On the consumption side, the robust demand in the United States, as evidenced by the strongest driving season in years, is counter-acted by our downwardly revised forecasts on Chinese oil consumption. Crude oil import growth in China will be sustained by increasing demand from an expanding downstream segment. Refined oil imports will continue to contract, however, as domestic demand growth slows and is increasingly met by domestic production.
| US Oil Demand Counteracts Chinese Slowdown |
|Refined Products Consumption Forecasts (Oil Consumption)|
On a region by region basis, we believe that oil production in Latin America will grow fastest on average per year over the 2014-2023 forecast period. In terms of consumption, the Middle East will register the fastest growth over the same period, with Western Europe experiencing the slowest growth in oil consumption.
| Regional Trends Diverge |
|Oil Production and Consumption GARG, 2014f-2023f, % change|
High prices and new technologies are supporting a wave of investments targeting Africa's conventional and unconventional opportunities. While the continent holds abundant natural resources, developments will be held back by the elevated level of political and security risks that are impacting both established and frontier markets alike.
Asia will remain a key oil and gas consumer. Gas has more growth potential in the region compared to oil, as Asia continues as the world's most important LNG demand market between 2014 and 2023. Oil production is forecast to decline in Asia by 0.3% on average each year to 2023, due to declining output from mature producers.
Russia will remain dominant in all areas of oil and gas in the central and eastern European region over the next ten years, though the bulk of both oil and gas production growth will come from the Caspian countries. We expect the refining sector to struggle with only Turkey and Turkmenistan expected to build new facilities, though significant investments will go into modernisation.
With regard to both upstream and downstream, the prospects for North America remain on the whole better than the outlook for Europe. While the North Sea is benefiting from a revival in investment and development, the upside from increased offshore activity appears to be limited to stemming, rather than reversing the decline. This contrasts with the US and Canada, where unconventional formations are supporting rapid supply growth and fuelling new upstream investment.
We take a relatively positive view of Latin America's oil and gas production, anticipating solid growth. In part this is due to our belief that whereas above-ground factors have long stymied output growth in the region, the number of major players beginning to implement reform suggests upside for the region at large. Latin America is going to be the fastest growing region in terms of oil production over the coming decade, registering 2.9% y-o-y average annual growth.
Oil production in the Middle East looks set for growth, supported by heavy investment by the region's major mature producers. Despite this, we see the region's crude oil export capacity come under increased pressure due to rising domestic consumption and an aggressive downstream expansion. With abundant low-cost feedstock and generous government funding, we hold a bullish outlook on the Middle East refining sector.