Oil Supply: What We Already Know
By S.R. Nunnally
In this article
By 2011, world demand will be 93.7 million barrels of oil a day.
At 6.5 million barrels a day, China's oil consumption is still about 68% less than what the U.S. consumes.
OPEC says it will have a 40 million barrel-a-day spare capacity in 2010. The IEA says OPEC is overshooting by about 1.6 million barrels a day.
Oil Supply: What We Already Know
The International Energy Agency (IEA) reported a rise in projected demand for the next five years that could tighten world oil supplies even further.
That's not exactly news to us. I told you about a month ago that world demand was set to outpace world supply… That information was also based on data the IEA released.
But this revision is a bit new.
Back in February, the IEA released its forecast for 2006-2011, calling an annual increase of 2% for global oil demand. From a global demand of 84.9 million barrels of oil a day last year, that's an overall increase of about 10.4% by 2011.
In other words, by 2011, world demand will be 93.7 million barrels of oil a day.
The new demand forecasts, however, predict an average annual rise of 2.2% between 2007 and 2012.
So let's redo the math, and keep the former 2% rise predicted for this year before we get into the higher growth range.
The new world demand by 2011 would be 94.5 million barrels a day, and 96.6 million by 2012… or 1% higher than previous forecasts. In total, that's an additional 292-365 million barrels of oil a year.
Want to hear something sickening?
That's enough to supply the U.S. with oil (at current demand) for only 14.1-17.6 days, but enough to supply the U.K. for 5-6 months.
Okay, perhaps the U.K. is a bad comparison… It only uses one-eleventh the amount of oil we use.
So let's compare our closest competitor: China.
At 6.5 million barrels a day, China's oil consumption is still about 68% less than what the U.S. consumes. At that rate, the additional oil demand growth would supply China's current oil demand for about 1½-2 months.
Despite the larger debate these comparisons may spark, one would assume this is very bullish for oil investors.
One would be right, but let me add fuel to the fire.
In addition to the increase in world demand, the IEA is now stating that OPEC's spare capacity -- the amount of room OPEC production has to grow -- is most likely lower than what the oil cartel is predicting.
OPEC says it will have a 40 million barrel-a-day spare capacity in 2010. The IEA says OPEC is overshooting by about 1.6 million barrels a day.
Essentially, this means production growth may not have as much room to grow as OPEC thinks.
That could spell even tighter supplies down the road, particularly if there are any supply disruptions that need to be met by a sudden increase in OPEC production.
But let's get back to the investors…
If OPEC supply could be in trouble several years down the road, traditional buy-and-hold investors could find some great deals on companies developing other parts of the world.
Russia's a great place for companies to start looking for new opportunities -- if the politics don't screw it up. Indonesia is another area that could see a boom in investment, particularly as it's beginning to deregulate its power industry and attract foreign companies to its resources.
Even our own Outer Continental Shelf may see a renaissance in oil drilling.
The rest of this week, I'll be looking for a good candidate that just might be ahead of the game. If you have any other areas or companies that might benefit from non-OPEC oil investments, send me your ideas at e-news@taipanfinancialnews.com.
***
S.R. Nunnally is a commodities expert and technical analyst for Taipan Financial News. She is the editor of Material Profits, a monthly newsletter providing in-depth, cutting-edge research in the commodities sector. She is also the founder of Material Profits Wildcatter, employing an elite group of aggressive investment strategies.
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