U.S. EIA cuts 2010 global oil production estimate

Posted Jul 2nd 2008 3:33PM by Joseph Lazzaro
Filed under: International Markets, Forecasts, Bad News, India, China, Middle East, Commodities, Oil

Many investors / traders are aware of the increasing demand for oil stemming form emerging markets economic growth. Vibrant, dynamic economies in China and India, but also in Australia and the Middle East, have been the biggest factor in oil's four-year bull market, which has brought oil prices to a record of over $140 per barrel.

Moreover, oil sector analysts, economists and executives are counting on continual, sizable oil production increases from non-OPEC nations to help contain oil prices in the quarters and years ahead, but now it appears there may be a problem related to that assumption.

Non-OPEC, OPEC output estimates lowered

The U.S. Energy Information Administration, the U.S. Department of Energy's statistical unit, has lowered its estimate for non-OPEC production in 2010 by 1.1 million barrels per day to 51.8 million barrels per day, from last year's forecast of 52.9 million. At the same time, the EIA lowered its 2010 OPEC production forecast by 400,000 barrels to 37.4 million.

Further, the EIA now sees 2010 global oil demand at 89.2 million -- in other words a statistical balance between daily global oil supply and demand.

Economist Glen Langan told BloggingStocks the projected production reduction is not good news for consumers in either the developed or developing worlds.

"The current safety cushion between supply and demand is about 600,000 to 1 million barrels per day, depending on the methodology you use," Langan said. "That's already about 50% what it historically has been in percentage terms, and it's a major factor in oil's price rise these last two years. The EIA projection suggests it's going to be even smaller, or non-existent, if one can imagine that. Of course the west and developing world has inventories, but the when traders see a drawdown from a daily supply shortage, they'll naturally bid the price of oil up even more, on fears of a future shortage."

Langan said he's "hoping EIA's projections are low regarding production, but they may not be." With the aforementioned in mind, policy makers in the United States and other high-oil-consumption nations "have to re-double their efforts to move to alternate fuels, increase engine efficiency, and improve overall conservation," he said

"We know what the current reality is given current oil supply / demand characteristics. It's high oil and gas prices," Langan said. "One can only imagine what levels they'd reach with tighter supply / demand conditions.

Oil Analysis: Prudent advise from economist Langan. Even under the best of all possible oil production worlds, it doesn't appear that global oil production, in and of itself, can increase enough to reduce oil prices. That puts the onus on reducing consumption as the key to containing oil's price.

Tags: emerging markets, Energy Information Administration, gasoline prices, inthenews, oil prices, oil shock, OPEC, U.S. economy