Oil Supply Increases Expected — IEA

Oil pipeline
Oil pipeline

The odds that oil prices will fall over time, caused primarily by supply increases, got more support from the International Energy Agency (IEA) in its oil market report for June. The forecast is similar to a number of others, mostly due to the assumption that oil sands yield, particularly in North America, will rise. If the predictions come true, OPEC nations will face pricing challenges, an observation that has spread over the past several months.

Some forecasts have gone so far as to claim that the United States could be energy independent within a decade. Other comments from experts predict that America could be the largest exporter of oil within a few years, passing Saudi Arabia. If either case ends up being true, America will no longer have to import crude, which by itself is likely to drive down prices.

Just days ago, the U.S. Energy Information Administration forecast in its "World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States" that estimates of oil and gas sands deposits have increased, primarily because of new data, which is driven by an advanced ability to identify deposits and the rise of technology that can tap them. The change in expected supply rose sharply from just two years ago:

This report provides an initial assessment of shale oil resources and updates a prior assessment of shale gas resources issued in April 2011. It assesses 137 shale formations in 41 countries outside the United States, expanding on the 69 shale formations within 32 countries considered in the prior report.

The IEA data makes a broader assessment, which includes changes in likely demand forecast that actually assume a minor increase in that demand. However, this is more than offset by increase in South Sudan production, along with the oil sands data.

It has been pointed out several of times that OPEC will lose some of its grip on oil prices. The OPEC nations could cut supply to keep prices high. However, the treasuries of some of these nations need a steady supply of dollars from crude. These countries have to balance the sales of barrels with dollar yield per barrel. That balance will become more difficult to make once the global markets are awash with oil-sands production.

The IEA observed:

The non‐OPEC supply forecast was raised by 50 kb/d to 54.5 mb/d for 2013 on rebounding output in South Sudan and strong North American oil sands and tight oil production.

That forecast likely will include greater and greater output estimates from shale with each and every report.

Filed under: 24/7 Wall St. Wire, Oil & Gas Tagged: featured