Recent Trends & Year Ahead for Oil Market

On the supply side, the report estimates that there was an oversupply of crude by 0.9 million bpd, on average, in 2006. In this context, it is remarkable that non-OPEC crude oil production has increased by a measly 700,000 bpd in 2006, despite three years of high oil prices and huge investments in explorations around the world. This echoes our view that the world maybe running out of crude oil. Credit Suisse states in a recent report, Life on the Plateau, that there was “lack of any convincing supply response from non-OPEC to the last three or four years of high and rising prices.”

For 2007, if the recently announced OPEC cuts totaling 1.7 million bpd take hold, then we estimate supply to total 82 million bpd vs an IEA estimated global demand of 86.1 million bpd in the 1st quarter of 2007. This expected oversupply of about 4 million bpd is huge given recent past trends and, is a key weakness on a fundamentals basis for oil prices as we enter 2007.

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