The Hindu Business Line : Shifting crude output may create price risk

Advertisement

Mumbai Feb 22 The upside risks to the crude oil market are increasing despite rising production; and the risk is not only from rising demand but also from shifts in the composition of producers.

The recent crude oil price recovery was widely recognised as being triggered by the breaking of mild weather in the US at the end of January; but a more interesting development is that recent recovery in oil prices is finding support in the emergence of a more upbeat consensus view on the fundamentals of the oil market in 2007.

In their latest market reports, the IEA, the EAI and the OPEC Secretariat have all made adjustments to their global oil balances which incorporate expectations for lower non-OPEC production and more solid demand increases, point out experts.

Early forecasts

In terms of non-OPEC supply growth, the range of forecasts for 2007 has narrowed significantly and it currently averages in the region of one million barrels per day (bpd).

Despite the revisions, there is a view that these forecasts are still too optimistic; and there should be no surprise if they are trimmed back further as the year progresses.

Experts assert there are very limited areas to offer positive growth prospects over the forthcoming years; and importantly, they tend to be located in non-OECD countries.

Production from the North Sea, the US and Mexico is on a fast falling trend — losses amounted to some 400,000 bpd in 2006.

Emerging producers

The growth in non-OPEC supplies will be increasingly reliant on emerging producers such as Brazil, Chad, Sudan and Equatorial Guinea as well as on Former Soviet Union (FSU), commented an analyst adding that most of these countries present some form of geopolitical risk. Thus ongoing shift of growth away from OECD and towards non-OECD countries adds a potential source of supply risk.

Looking ahead, countries from FSU may account for most of the growth in non-OPEC supply (or for 0.45 million bdp), with production from Azerbaijan and Kazakhstan accounting for half of it. Supply from these countries is expected to expand rapidly over the next decade as new fields are brought on stream, experts said.