For a presentation that reviews the latest macro trends in the energy industry, please click here.
The latest IEA estimates of worldwide supply and demand fundamentals referenced here are presented on page one of our Energy Macro Statistic Review.
The nearly 10% rise in front month WTI oil prices during December and January was at least partially fueled by strong 4th quarter oil demand. For the exception of Europe, every major region of the world posted healthy year over year demand increases during this period. In aggregate, preliminary 4Q12 demand figures show that demand increased by a very strong 1.7 Mil. Bbl/Day over the same period last year.
The most significant contributor to this growth was China with a reported demand increase of +700,000 Bbl/Day. Given that this figure is significantly above 2012 average increase of +350,000 Bbl/Day, there is speculation that this most recent figure is artificially high due to a surge in refinery runs that has resulted in large builds of refined product.
On the supply side, U.S. oil production growth continues to surprise to the upside and is currently up +1.2 Mil Bbl/Day over last year as of the latest data point at the end of January. OPEC appears to believe that this surge of crude production will outpace the growth in worldwide crude demand and has cut production to it’s lowest level in a year as of the end of December to 30.65 Mil. Bbl/Day.
Thus, while the oil market appears to be in a fairly healthy supply and demand balance, OPEC (Saudi Arabia in particular) has aided this process by curtailing production to make room for new U.S. production volumes.
This graphic gives a quick view of some of the most important trends in the global oil market.
North America is the only region with non-OPEC production growth. This was the case throughout 2012 and is likely to continue to be the case for the next several years. Other regions currently lack the infrastructure for large-scale shale development and decline rates on existing production around the world have proved very difficult for other non-OPEC countries to overcome.
Oil demand from developed countries (“OECD countries”) has been falling. Due to a combination of recession and longer-term trends such as increased fuel efficiency and urbanization, OECD oil demand has been contracting in recent years. For 2013, early forecasts indicate that the burgeoning economic recovery in the U.S. and Europe will stem these declines, but predict that at best, year over year demand will be unchanged for these countries.
However, emerging market (“non-OECD countries”) oil demand has been strong enough to more than offset these declines in the developed world. While China is the single most important country for oil demand growth, other emerging market countries in South America and the Middle East all contribute to long-term growth of oil demand worldwide as the populations of these countries experience increases in per capita income.