IEA Issues New Pessimistic Oil Outlook

Here is the press release from the International Energy Agency's latest Medium-Term Oil Market Report. (It appears the actual report costs 400 Euro, so I won't be commenting on that)

Some interesting highlights:

Supply

Supply growth deriving from a concentration of new project start-ups during 2008-2010, allied to weaker economic growth, sees potential spare capacity rise in excess of 4 mb/d. However, this expansion slows from 2011 onwards when global demand growth recovers, leading to a narrowing of spare capacity to minimal levels by 2013. Since the 2007 MTOMR, significant downward revisions have been made to both non-OPEC supplies and OPEC capacity forecasts. Project delays averaging 12 months, coupled with global average decline of 5.2% - up from 4% last year – are the factors behind these revisions. Over 3.5 mb/d of new production will be needed each year just to hold global production steady. “Our findings highlight again the need for sustained, and indeed, increased investment both upstream and downstream -- to assure that the market is adequately supplied,” stated Mr. Tanaka.

Biofuels

Although biofuels will add to supply growth, increasing from 1.35 mb/d in 2008 to 1.95 mb/d by 2013, announced capacity additions may be difficult to achieve given available feedstock and growing concerns due to rising food prices. “Biofuels have helped to diversify energy supply. They cannot be blamed for all of the increase in grain prices, even if they have had an impact. However, we remain cautious in regard to the future growth of 1st generation biofuels as there will be growing competition for feedstocks and we see increased difficulties to expansion of biofuels in some places,” said Mr. Tanaka.

Demand

Global demand for oil products will grow by an average of 1.6% per year to 2013, from 86.9 mb/d in 2008 to 94.1 mb/d. ... “Developing countries will drive demand growth, their total consumption equalling that of mature economies by 2015.” Asia, the Middle East and Latin America will account for nearly 90% of demand growth over the five-year forecast period.

These are not comforting messages. These, along with comments earlier this week by OPEC leaders about $170-180/barrel oil, seem to lend credence to the opinion that gas prices are not going down any time soon. ...Not to mention the increased tension with Iran. Just when I start to get a little optimistic...