The forecast for total world oil consumption grows by an annual average of 1.5 million bbl/d in 2011 and 2012. Supply from non-OPEC countries grows an average of about 0.4 million bbl/d annually through 2012. Consequently, EIA expects that in order to meet projected demand growth the market will rely on both a drawdown of inventories and significant increases in the production of crude oil and non-crude liquids in OPEC member countries at a time when the disruption of crude oil exports from Libya and continuing unrest in other MENA countries already highlight significant supply risks.
Among the major uncertainties that could push oil prices above or below our current forecast are: the continued unrest in producing countries and its potential impact on supply; decisions by key OPEC member countries regarding their production response to the global increase in oil demand; the rate of economic growth, both domestically and globally; fiscal issues facing national and sub-national governments; and China's efforts to address concerns regarding its growth and inflation rates.
Global Crude Oil and Liquid Fuels Consumption. World crude oil and liquid fuels consumption grew by an estimated 2.3 million bbl/d in 2010 to a record-high level of 86.7 million bbl/d. EIA expects that world liquid fuels consumption will grow by 1.5 million bbl/d in 2011 and by an additional 1.6 million bbl/d in 2012 (World Liquid Fuels Consumption Chart). Countries outside the Organization for Economic Cooperation and Development (OECD) will make up almost all of the growth in consumption over the next two years, with the largest increases coming from China, Brazil, and the Middle East. EIA expects that, among the OECD regions, only North America will show growth in oil consumption over the next two years, offsetting declines in OECD Europe and Japan.
Non-OPEC Supply. EIA projects that non-OPEC crude oil and liquid fuels production will increase by 550,000 bbl/d in 2011, and 230,000 bbl/d in 2012 (Non-OPEC Crude Oil and Liquid Fuels Production Growth Chart). The greatest increases in non-OPEC oil production during 2011 occur in China, Brazil, and in countries that were formerly part of the Soviet Union where EIA expects annual average production growth of 140,000 bbl/d, 170,000 bbl/d, and 270,000 bbl/d, respectively. In 2012, EIA expects Canadian production to grow by 180,000 bbl/d while China and Brazil grow by 140,000 and 110,000 bbl/d, respectively. Other non-OPEC areas are expected to decline, including a decrease in North Sea production of 110,000 bbl/d in 2011 and a further 230,000 bbl/d in 2012. Projected U.S. crude oil and liquid fuels production is flat in 2011 and then falls by 130,000 bbl/d in 2012.
OPEC Supply. Forecast OPEC crude oil production increases by only 0.1 million bbl/d in 2011, followed by a significantly larger 1.1 million bbl/d increase in 2012. EIA assumes that about one-half of Libya's production will resume by the end of 2012. EIA has revised its projected OPEC surplus capacity downward, compared with the last Outlook. EIA projects that OPEC surplus capacity will fall from 4.2 million bbl/d at the end of 2010 to 3.4 million bbl/d at the end of 2011, followed by a further decline to 2.7 million bbl/d by the end of 2012 (OPEC Surplus Crude Oil Production Capacity Chart). Forecast OPEC non-crude liquids production increases by 0.7 million bbl/d in 2011 and by 0.3 million bbl/d in 2012.
OECD Petroleum Inventories. EIA expects that OECD onshore inventories will decline from the elevated levels of 2010 following the steep drop in floating storage that has already occurred. Projected on-shore OECD stocks fall by about 78 million barrels in 2011, followed by an additional 43 million barrel decline in 2012. Days of supply (total inventories divided by average daily consumption) drops from a relatively high 58 days during the fourth quarter 2010 to 55.8 days in the last quarter of 2011. EIA expects that the continued increase in consumption and decline in inventories in 2012 will leave inventories at 54.6 days of supply at the end of that year (Days of Supply of OECD Commercial Stocks Chart).
Crude Oil Prices. WTI crude oil spot prices averaged $89 per barrel in February then rose to $108 per barrel by the end of March. Projected WTI prices average $106 in 2011 and $114 per barrel in 2012, increases of $5 per barrel and $9 per barrel, respectively, from last month's Outlook (West Texas Intermediate Crude Oil Price Chart). Growing volumes of Canadian crude oil imported into the United States contributed to record-high storage levels at Cushing, Oklahoma, and a price discount for WTI compared with similar quality world crudes such as Brent. Consequently, the projected U.S. refiner average acquisition cost of crude oil, which was about $2.50 per barrel below WTI in 2009 and 2010, is $2.20 per barrel above WTI in 2011 and $0.25 per barrel above WTI in 2012.
All energy price forecasts are highly uncertain (Energy Price Volatility and Forecast Uncertainty). WTI futures for June 2011 delivery over the 5-day period ending April 7 averaged $109 per barrel and implied volatility averaged 30 percent, establishing the lower and upper limits of a 95-percent confidence interval for the market’s expectations of monthly average WTI prices in that month of $90 per barrel and $132 per barrel, respectively. Last year at this time, WTI for June 2010 delivery averaged $83 per barrel with the limits of the 95-percent confidence interval at $68 per barrel and $101 per barrel. Based on WTI futures and options prices, the probability that the monthly average price of WTI crude oil will exceed $120 per barrel in December 2011 is about 32 percent. Conversely, the probability that the monthly average December 2011 WTI price will fall below $100 per barrel is about 38 percent.
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