The global oil market remains far from equilibrium. Sustainable spare upstream capacity is limited at just below 2 mb/d, far short of the 4.5 m/d or 5% level that might represent the borderline of a more comfortable and sustainable situation. With there being little immediate prospect of a substantial increase in spare capacity and with the scope for significant shifts in the geopolitical landscape in key producing areas remaining high, the stage  appears to be set for a relatively nervous period of trading, with little sense of markets’ settling happily into any particularly well-defined, stable, or comfortable price range, Barclays said in a report.
A period of relatively anaemic global economic growth following the extreme downturn of 2008/9, as well as mild northern hemisphere winter conditions at the start of 2012 in key consuming areas might prima facie have been expected to represent the basis for a weak oil price.
In reality, however, the industry is running rather hot, at 98% of upstream capacity, and the system is still not generating any surplus at the margin in terms of capacity or inventories. As a result, the oil market remains highly prone to supply shocks, as well as an increasingly complex and interrelated set of geopolitical dynamics in the Middle East.
Other factors are intruding on the bearish picture of supply optimists and destroying the simple case that sluggish economic performance plus shale oil must equal a rapidly loosening market. The solution to this apparent mystery is that while oil output is strong in the US, it has slumped elsewhere.
While OECD economies have been under pressure, thus far the weakness in OECD oil demand has been relatively muted and considerably less pronounced than in 2008/9, and non-OECD demand growth has continued at a steady, albeit unspectacular, pace.
While the risk of both geopolitical and macroeconomic discontinuities remains, Barclays expects oil markets to remain tight into 2013.
“We expect OECD demand growth to remain slightly negative, non-OECD demand growth to slow slightly relative to 2012, and non-OPEC supply growth to remain slow, particularly outside North America. We forecast a modest increase in the call on OPEC crude in 2013, allowing OPEC to produce comfortably above 31 mb/d of crude and close to 38 mb/d of total oil liquids without generating any significant inventory build.” Barclays added.
The global oil market remains tight, with limited spare capacity; as a result, it is expected to exhibit a significant degree of sensitivity to geopolitical risks and other potential supply-side complications. The overall tightness in the market, plus the lack of spare capacity and the extent of geopolitical risks, seems to suggest that OECD governments are likely to become more directly involved in the market.
Non-OPEC supply growth is expected to remain poor. Although supply growth from crude and NGLs has been strong in the US, outside the US, the level of non-OPEC supply has fallen sharply in 2012.
“We expect further growth from the US in 2013, albeit at a diminishing rate, and a more robust performance in the rest of non-OPEC, resulting in a slightly improved overall performance relative to 2012, with supply growth of 0.49 mb/d.” the report noted.
Global oil demand growth is expected to remain robust, albeit modest, unless there is significant macroeconomic discontinuity or a geopolitically based oil price spike. Barclays forecasts growth of 1.16 mb/d in 2013, with the annual average moving beyond 90 mb/d for the first time and with quarterly peaks nearing 92 mb/d.
Source: Barclays Research