Possible non-OPEC oil supply surge to put pressure on prices?

[FBaggins]

Recent oil production data from non-OPEC countries is enough to give any peak oil theorist a nervous rash, and explains in part why oil prices are susceptible to near term weakness whenever there is an economic maelstrom (like last week). Figure 1 shows that output from countries that don’t belong to the infamous oil cartel increased by 800,000 B/d in 2009, the largest year-over-year increase in the past five years. And expectations for additional barrels in 2010 are on track for another bump up of 500,000 B/d.

To be sure, data points from only two years shouldn’t make us rush to believe that world oil is undergoing a shale gas type surge in productive capacity. In fact, it’s not. Analysis strongly suggests that the production surge in 2009 and 2010 will not repeat; in other words, non-OPEC oil output is not expected to grow in 2011 and the foreseeable future. So, against a backdrop of resurgent demand from emerging economies that means that a bias to higher oil prices over the next 12 to 24 months remains (notwithstanding another economic meltdown).

Yet those in the oil business shouldn’t be too complacent in recognizing the significance of the mini-tsunami of non-OPEC oil that hit the markets in 2009, at the same time as the financial crisis washed out the demand side. In fact, it was OPEC that took excess barrels off the market, sacrificing market share, which is why the cartel’s collective spare productive capacity tripled in the past two years, going from 2.0 MMB/d to 6.0 MMB/d.

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Yet when oil prices do rise again, the non-OPEC production surge of 2009 and 2010 should serve as a reminder that we must always challenge the assumption that oil production can’t rise or be substituted. In other words, the supply side of the energy industry can respond unexpectedly – just ask anybody in the North American natural gas business.



Read more: http://www.calgaryherald.com/business/Possible+OPEC+supply+surge+pressure+prices/3037511/story.html#ixzz0oIFV1iln