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1、Commodities Research9 January 2013Petroleum Politics and EconomicsUS oil supply:Where are we now?Paul Horsnell+44(0)20 7773 Miswin Mahesh+44(0)20 7773 The US Energy Information Administration has sharply increased its forecast ofUS oil liquids supply growth in 2013 to 920 thousand b/d.The bulk of gr
2、owth in2013 and 2014 is expected to occur in the Western Gulf Basin of Texas thatincludes Eagle Ford,with smaller contributions from Bakken and the Permian.US oil output has grown by 2.48 mb/d over the past four years,which has beenabsorbed into global balances and still left room for OPEC to increa
3、se.We expecta similar outcome in 2013 and 2014 due to weak output outside North America.The previously stubborn deficit of US oil product inventories relative to their five-year average has all but disappeared after a sharp rise in the latest data release.Cushing crude oil inventories have risen abo
4、ve 50 mb for the first time ever,while the weekly indicator of US crude output has risen above 7 mb/d.FIGURE 1US tight oil supply increases are expected to be concentrated in Texas Western Gulfbasin.EIA projections for December 2014 compared to December 2012,mb/d.Western Gulf,PermianBakken,Dec 12Dec
5、 14,0,0.2,0.4,0.6,0.8,1,1.2,1.4,1.6,1.8,2,Note:The Western Gulf Basin includes Eagle Ford,with 0.4 mb/d of the 2014 projection outside Eagle Ford.Source:EIAPLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 40,2,Barclays|Petroleum Politics and EconomicsCOMMENTARYUS oil s
6、upply:Where are we now?,2013 begins with a drift aboverecent rangesThe EIA raises its estimateof US production growth in2013 substantiallyThe Western Gulf Basin isprojected to be the main sourceof US production growthSince 2008,extra US oil hasbeen absorbed into globalbalances relatively easily,2013
7、 has started with a very gentle upwards drift in prices.Brent has not really broken outinto a substantially higher range,but it has at least moved marginally away from the recentvery tight range.After trading in the$108-111 range at some point on 50 out of the final 51trading days of 2012(and it onl
8、y missed that range by 11 cents on the other day),priceshave found a little more freedom in 2013.Indeed,front-month Brent has traded above$111per barrel for the entirety of three of the past five trading days,and it has settled above$111per barrel for six straight days.It is not perhaps a huge chang
9、e,but it is at least a change.After those 51 long trading days doing the same thing,Groundhog Day appears to beloosening its death grip on the oil market.Yesterday the US Energy Information Administration(EIA)released its latest Short TermEnergy Outlook,updating its forecasts for 2013 and introducin
10、g forecasts for 2014.Themain change made to the 2013 EIA forecasts concerned US oil supply and the shape of thecontinuation of the already four-year-long surge in output.Using EIA baseline figures,USsupply has risen by 2.48 mb/d over the past four years,and the EIA now expects a further1.61 mb/d inc
11、rease in US total oil liquids supply over the course of 2013 and 2014combined.That would bring the cumulative rise from 2008 to 2014 to 4.09 mb/d,with the2014 average put at 12.65 mb/d.In the previous EIA report,US supply was slated to rise by670 thousand b/d in 2013,which would represent a slight c
12、ooling in the pace of growthrelative to 2012.However,the latest forecast involves no cooling at all,with US supply nowprojected to rise by 920 thousand b/d this year.That number is perhaps the main key tojudging the direction of the oil market in 2013.To be more precise,the key variable is thecapabi
13、lity of the market to absorb a further slug of US crude of that magnitude.The extraproduction over the past four years has not created any surplus at the global level,but willthat remain true over the next two years?Of the 1.61 mb/d increase in total oil liquids,1.49 mb/d is projected by the EIA to
14、be crudeoil,and virtually all of that forecast crude oil supply increase comes from tight oil.Amongthe major tight oil producing basins,(see Figure 1),the EIA sees Bakken production,(predominantly in North Dakota),increasing by 0.35 mb/d to 1.19 mb/d by the end of2014.The forecast for the Permian Ba
15、sin in West Texas has been scaled back due to lowerrig efficiency for Permian wells,but output is still projected to rise by 0.17 mb/d to 1.4mb/d over the next two years.The largest growth increment is expected to come from theWestern Gulf Basin in South Texas which includes the Eagle Ford formation
16、.The EIAexpects Western Gulf production to rise by 0.68 mb/d over the course of 2013 and 2014 toreach 1.75 mb/d.Gulf of Mexico output is projected to average 0.18 mb/d higher in 2014than in 2012,with a relatively modest 0.05 mb/d decline in Alaskan crude output.Thus far in the four-year long surge,t
17、he extra supply has been absorbed without requiringlower global prices.All of the growth in non-OPEC supply has come from North America,indeed from 2008 to 2012 non-OPEC supply in other areas fell by 0.16 mb/d on EIA,estimates with the fall over the past two years alone having been 1.15 mb/d.The top
18、-levelmathematics of the oil market over the past four years has been that global demand hasincreased by 3.61 mb/d,which,adding in the fall in non-OPEC supply outside NorthAmerica,has left a gap of 3.77 mb/d to be filled by North American and OPEC supplygrowth.North America has taken 2.76 mb/d of th
19、at,of which the US alone has accountedfor 2.48 mb/d.In order to achieve balance,that has left an incremental 1 mb/d for OPECcrude oil and other OPEC liquids.Thus,while OPEC has not enjoyed much of an output9 January 2013,3,Barclays|Petroleum Politics and Economicsincrease,it has also not had to cut
20、supply in the face of the US surge.The key question weposed above as to the absorptive capacity of the market then morphs into the question asto whether 2013 and 2014 will be an extension of the mathematics that have held from2008 to 2012.In other words,will the next 1.61 mb/d of incremental US oil
21、liquids outputhave a different effect from the 2.48 mb/d increment that has already arrived?,The expected continuation ofthe US output surge appearscontainable for OPECGeopolitical developmentshave yet to move oil in 2013,Re-running the rough balance calculation above on the basis of the EIA project
22、ions,theresult is as follows.Global demand is expected to rise by 2.29 mb/d across 2013 and 2014combined,while North American supply is expected to rise by 2.05 mb/d,of which the USaccounts for 1.61 mb/d.Whether OPEC has to cut over the next two years then depends onthe performance of non-OPEC suppl
23、y outside North America.It is in the behaviour of thisquantity that the EIA appears to be forecasting a major watershed.Non-OPEC supplyoutside North America fell by 1.15 mb/d across 2011 and 2012 on EIA data,while the EIAprojections see it as increasing by 0.77 mb/d across 2013 and 2014.Were that to
24、 happen,there would then be a hole of about 0.5 mb/d for OPEC to cover through a reduction in itscombined crude and NGLs output.While this is not necessarily an overly happy scenario forOPEC,it is also hardly a disastrous one given that far larger cuts have been achieved beforein recent years in ord
25、er to achieve market balance.Indeed,given the high current rate ofcapacity utilisation and the relatively limited new capacity due over the next two years,thelevel of spare capacity would be likely to remain heavily constrained.In other words,thesystem might still be running a little hot in two year
26、s time even if the EIA balances did playout as forecast.The continuation of the US oil output surge does not then look likely to create any seriousglobal imbalance,even if it were as large as in the latest EIA forecasts.In our view the overall2013 and 2014 balance is likely to be tighter than that s
27、cenario,as we do not expect theturn around in non-OPEC supply outside North America to be quite as sharp as in the EIAfigures.We see it as falling by 0.25 mb/d between 2012 and 2014.If one uses all the otherEIA numbers,but projects a fall in non-OPEC supply outside North America of thatmagnitude,the
28、n,while still constrained,OPEC would not have to cut its overall output level.In short,we do not expect the global effects of the next two years of the US oil supply surgeto be particularly different from the effect of the previous four years.Using the EIAforecasts,there appears to be nothing more p
29、otent in the 1.61 mb/d increase yet to comeby the end of 2014 than there has been in the 2.48 mb/d increase that has already arrivedand has been absorbed into the balances.While we expect geopolitical developments to become a major driver for the oil market in2013,and in particular Irans external re
30、lationships,thus far developments have not created,any ripples strong enough to disturb the market calm.Nevertheless,there have been somedevelopments in the background.At first sight,the nominations for both US Secretary ofState and for the Secretary of Defense appear to be less hawkish than those p
31、reviouslyslated as being likely.In particular,both nominations appear to be pragmatists in policyterms,and are perhaps more likely to at least consider paths that might lead to moreaccommodative and negotiated solutions.Thus far,the bulk of direct conflict with Iranappears to be being carried out in
32、 cyberspace.After a barrages of well-publicised attacks onIranian computer targets,and attacks made against oil systems in Saudi Arabia,the latestmanifestation has been a wave of seemingly highly sophisticated attacks on US financialtargets.While there has not been any explicit comment from within t
33、he administration,there appears to be,according to the New York Times,a consensus among security and ITanalysts that the attacks are likely to be retaliation for the attacks made previously againstIranian targets.While not yet market moving,Irans external relations do not yet seem to beheading towar
34、ds a calmer phase.9 January 2013,4,Barclays|Petroleum Politics and Economics,The US oil product inventorydeficit has all but disappeared,The latest US weekly oil data release continues a run of soft releases,over the course ofwhich oil product inventories have risen sharply relative to seasonal norm
35、s(see Figure 33).As recently as six weeks ago,the deficit of US oil product inventories(excluding“other oils”)relative to their five-year average stood at a large 38.1 mb.In the latest data release it standsat just 2.7 mb,having narrowed by 8.8 mb over the past week alone.Much of that damagehas been
36、 wrought in the gasoline market,where inventories are now 14.1 mb above thefive-year average having been below that average six weeks ago(see Figure 37).The latestrise of 7.4 mb takes the total to 233.1 mb,which is higher than the level achieved at thepeak of the seasonal build last year.Indeed,the
37、current level is the highest since February2011.Cushing crude inventories have risen above 50 mb for the first time(see Figure 32),several months before any seasonal turn down in inventory levels would be expected tocommence.Crude imports surged by 1.25 mb/d from the previous weeks low level,but ona
38、 four-week average are still 910 thousand b/d lower than a year ago.In reality crude oilproduction reporting systems are not timely or reliable enough for the weekly data to betreated as a very precise measure.However,with that proviso made,the latest weeklyreading for US crude oil production is 7.0
39、02 mb/d,the first reading above 7 mb/d thiscentury and more than 1.1 mb/d higher than the first reading of 2012.The latest releasealso completes the first provisional demand estimates for 2012 as a whole.US gasolinedemand fell by 0.4%in 2012,distillate demand fell by 4.1%,and the total fell by 1.6%.
40、There are still a lot of revisions to come for the 2012 data,but the overall pattern of a smalldecline in gasoline and a more substantial fall in the middle of the barrel seems clearenough at this stage.FIGURE 2EIA weekly data release summary,mb,04 Jan 2013Crude oilGasolineTotal distillateHeating oi
41、lDieselJet keroseneResidual fuel oilUnfinished oilsOther oilsTotal commercial inventories,inventories361.25233.09130.7425.37105.3739.6335.5781.85218.321100.45,1 weekchange1.317.416.780.496.290.44-0.860.25-4.4010.95,4 weekchange-11.3615.9712.69-1.6814.37-0.25-1.901.23-14.401.98,1 yearchange26.69.3-16
42、.8-10.2-6.6-1.9-0.25.124.646.7,differencefrom 5-yearaverage39.914.1-17.1-14.3-2.8-1.4-1.22.932.469.5,Source:EIA,Weekly Petroleum Status Report,A man lost in time nearKaDeWe,walking the dead,Last time around we left you with a list of countries,all of which garnered more than theirusual share of news
43、 headlines in 2012,namely Sudan,South Sudan,Syria,Lebanon and,Egypt.We asked which characteristic is shared by those countries and by just one othermember state of the UN.At first sight it may look like as if we are angling for some aspect ofwar,revolution or other civil strife,but in fact the quest
44、ion is about something very basic,ie,money.The country that we did not name is the UK,and adding the UK to the roll call abovecreates the full list of the six UN members whose basic unit of currency is called the pound.It was as simple as that,although admittedly you did not get much a clue bar the
45、line fromthe Pretenders Brass in Pocket that was in the hanging text of the paragraph.There wasonly ever going to be one subject for the next quiz following the surprise release of a newBowie song.Over time this quiz has got more mileage out of David Bowie than any othersubject,we even managed two q
46、uestions based on the connection between Bowie andfemale backing singers dressed in zebra costumes,which is perhaps taking Bowie-relatedtrivia a couple of levels further than most people are fully comfortable with.No zebras this9 January 2013,5,Barclays|Petroleum Politics and Economics,time,instead
47、we are giving you two lists of five names and asking who is the odd one out ineach list and why.The first list is Kiefer Sutherland,Christopher Walken,Dan Aykroyd,JaneSeymour and David Bowie.The second list is John Lennon,Rudyard Kipling,Aldous Huxley,Paul Weller and David Bowie.,9 January 2013,2012
48、,6,Barclays|Petroleum Politics and EconomicsCOMMENTARY ON OTHER WEEKLY DATA,Crude prices begin 2013 with adrift above their recentdominant rangeUS gasoline prices start 2013exactly where they startedUS drilling activity is at a nine-month low,Crude oil markets have begun 2013 with a gentle drift to
49、the upside,with WTI reaching athree-month high while Brent and the OPEC basket have reached two-month highs.However,the move above the tight dominant trading range of the past couple of monthshas remained modest and contained.Over the past week as a whole,the value of the OPECbasket rose by 96 cents
50、 to$108.72 per barrel,while in euro terms it rose by 1.78 to 83per barrel.The value of the OPEC basket last exceeded$110 per barrel on 17 October 2012,with the highest value calculated by the OPEC Secretariat over the past week falling short ofthat level by 85 cents.In Tokyo,the February average Dub
