Oil consumption growth expected to remain strong

ABU DHABI — Although higher prices have slowed world petroleum consumption growth, expected growth remains strong at 1.6 million barrels per day (bbl/d) in 2006 and 1.8 million bbl/d in 2007, says an Energy Information Agency (EIA) report.

By Haseeb Haider

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Published: Fri 28 Jul 2006, 12:48 PM

Last updated: Sat 4 Apr 2015, 1:11 PM

Most consumption growth will be met by increases in non-Opec production. The remainder will be met by increases in Opec production or drawdown of inventories.

First quarter 2006 production data shows slightly higher-than-expected non-Opec production, but growth for the year will likely remain flat at 0.8 million bbl/d . This includes 0.2 million bbl/d of total liquids growth from the United States as producers continue to recover from losses suffered during the 2005 hurricane season.

Growth in 2007 non-OPEC production will likely rise to more than 1.4 million barrels per day. Relative to 2005, surplus world crude oil production capacity, most of which is located in Saudi Arabia, is expected to rise only slightly in 2006 and 2007.

Since only limited surplus capacity could be tapped during the forecast period, existing and potential supply problems in Nigeria, Iran, Iraq and Venezuela raise concern, as does the threat of more hurricane damage. These factors, as well as the continued tight supply-demand balance, leads to expectations of little relief from current pricing patterns.

Cutbacks in production in Saudi Arabia and damage to production facilities in Nigeria have resulted in a decline in Opec supplies during the first half of 2006 despite an increase in Iraqi production in June. Not surprisingly, this decline in Opec supply has led to a counter-seasonal pattern in global oil inventories during the second quarter of 2006, with inventories building only slightly.

Organisation of Economic Cooperation and Development (OECD) inventories began the second quarter at the upper end of their past 5-year range for this time of year. However, when measured on the basis of how many days of demand the current supply could meet, OECD inventories were only in the middle of their observed five-year range. The drawdown is expected to make the market even tighter. By the end of 2007, EIA expects days of supply of OECD inventories to finish at the bottom of their five-year lows for that time of the year.

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