----- Original Message ----- From: Sven Buttler <[EMAIL PROTECTED]> To: mll <[EMAIL PROTECTED]> Sent: Monday, June 12, 2000 2:45 PM Subject: MLL: World Oil Markets 1of3 part 1 Sorry folks. I need to fruther split up the first posting on World Oil Markets as it is too large, ie >40kb. This is the first part. This will also be put on the list's website. Sven Buttler http://www.marxist-leninist-list.org Taken from http://www.eia.doe.gov/oiaf/ieo/oil.html World Oil Markets The IEO2000 projections reflect a change in short-term expectations for world oil prices. In the long term, OPEC production cutbacks are expected to be relaxed, and prices are projected to rise gradually through 2020 as the oil resource base is expanded. The crude oil market rebounded dramatically in 1999. Prices rose from the low monthly average of $9.39 per barrel (nominal U.S. dollars) in December 1998 to $24.44 in December 1999, an increase of almost $15 a barrel. Prices were influenced by the successful adherence to announced cutbacks in production by members of the Organization of Petroleum Exporting Countries (OPEC) as well as several non-OPEC countries, notably, Mexico and Norway. In addition, the price decline in 1998 significantly dampened the annual production growth that non-OPEC suppliers had provided since the mid-1990s, and petroleum demand in Southeast Asia began to recover from the severe recession of 1997-98. Oil consumption rose in 1999 by slightly more than 1 million barrels per day with industrialized nations accounting for about one-half of the increase. Before the 1998 recession, oil demand in developing Asia (including China) had grown at a robust annual rate of about 8.0 percent between 1991 and 1997. As the Asian economies began recovering in 1999, oil demand grew in China by 5.1 percent and in the rest of Asia grew by 2.0 percent. With economic problems in Brazil and political uncertainty in Colombia, Ecuador, and Venezuela, oil demand in Latin America did not increase in 1999. Persistent economic problems in Russia caused declines in oil demand in both 1998 and 1999 for the former Soviet Union (FSU); however, oil demand in the FSU is expected to show slight growth in 2000 [1]. On March 23, 1999, OPEC (not including Iraq) agreed to production cutbacks totaling 1.7 million barrels per day. Four non-OPEC suppliers (Mexico, Norway, Russia, and Oman) pledged an additional 0.4 million barrels per day. Two earlier OPEC ministerial meetings in 1998 had yielded plans for oil production cutbacks that were never successfully realized, but the active encouragement by non-OPEC producers may have lent an air of seriousness to the more recent OPEC pledges. Since the March 23rd meeting, OPEC's production management efforts have been successful, and their target of raising prices above $20 per barrel has been met. A September 22-23, 1999, OPEC ministerial meeting yielded no additional production cutbacks, but there was agreement to hold the current course. The question now is when OPEC will raise the production targets for its members. At the beginning of 1999, constraints on worldwide oil supplies were becoming evident as the low oil price environment prevailed. Stripper production in the United States was in decline. Exploration and development spending was being slashed. Rig utilization rates, especially for onshore equipment, had drastically fallen. Announced spending plans worldwide were reduced. Oil-producing countries faced severe fiscal deficits, causing national oil companies to cut capital spending. Private-sector restructuring led to mergers involving leading multinational oil companies. The oil market pessimism prevalent at the beginning of 1999 was not evident, however, by the end of the year. Incorporating the recent price turbulence into the construction of an intermediate- and long-term oil market outlook is difficult and raises the following questions: Will prices remain above $20 per barrel even when the production targets of OPEC producers are raised and significant increases in non-OPEC production are once again expected? Will sustained and robust economic growth in developing countries continue, given the severe setback to the Asian economies in 1998? Will technology guarantee that oil supply development moves forward even in a low world oil price environment? Although oil prices more than doubled in real terms from 1998 to 1999, that development is not indicative of the trend in the International Energy Outlook 2000 (IEO2000) reference case. In the short term, oil prices in are expected to continue at the levels seen during the later months of 1999 into 2000. As OPEC production cutbacks are relaxed and non-OPEC production increases are realized, however, prices are expected to fall back slightly from the 2000 level, then increase gradually out to 2020. When the economic recovery in Asia is complete, demand growth in developing countries throughout the world is expected to be sustained at robust levels. Worldwide oil demand reaches almost 113 million barrels per day by 2020 in the reference case, requiring an increment to world production capability of almost 40 million barrels per day relative to current capacity. OPEC producers are expected to be the major beneficiaries of increased production requirements, but non-OPEC supply is expected to remain competitive, with major increments to supply coming from offshore resources, especially in the Caspian Basin and deepwater West Africa. Over the past 25 years, oil prices in real 1998 dollars have ranged from $12.10 to $63.30 per barrel. In the future, one can expect volatile behavior to recur principally because of unforeseen political and economic circumstances. Tensions in the Middle East, for example, could give rise to serious disruptions of normal oil production and trading patterns. On the other hand, significant excursions from the reference price trajectory are not likely to be long sustained. High real prices deter consumption and encourage the emergence of significant competition from marginal but potentially important sources of oil and non-oil energy supplies. Persistently low prices have the opposite effects (see discussion on "Are Low World Oil Prices Sustainable"). Limits to long-term oil price escalation include substitution of other fuels (such as natural gas) for oil, marginal sources of conventional oil that become reserves when prices rise, and nonconventional sources of oil that become reserves at still higher prices (see discussion on "Taking Stock: Reporting Reserves and Selected Natural Gas finds of 1999" in the natural gas chapter of this report). Advances in exploration and production technologies are likely to bring down prices when such additional oil resources become part of the reserve base. The IEO2000 low and high world oil price cases suggest that the projected trends in growth for oil production are sustainable without severe oil price escalation. There are oil market analysts, however, who find this viewpoint to be overly optimistic, based on what they consider to be a significant overestimation of both proven reserves and ultimately recoverable resources. Highlights of the IEO2000 projection for the world oil market are as follows: The reference case price projection shows an oil price increase of more than $4 per barrel from 1999 to 2000, a decline of slightly less than $3 per barrel in 2001, and then an 0.4-percent average annual increase through 2020. Deepwater exploration and development initiatives are generally expected to be sustained worldwide, with offshore West Africa emerging as a major future source of oil production. Technology and resource availability can sustain large increments in oil production capability at the reference case prices. The low price environment of 1998 and early 1999 did slow the pace of development in some prospective production areas, especially, the Caspian Basin region. Economic development in Asia is crucial to long-term growth in oil markets. The evolution of Asian oil demand projected in the reference case would strengthen economic ties between the Middle East and Asian markets. Although OPEC's share of world oil supply is projected to increase significantly over the next two decades, competitive forces among energy producers are expected to remain strong enough to forestall efforts to escalate real oil prices significantly. The competitive forces operate within OPEC, between OPEC and non-OPEC sources of supply, and between oil and other sources of energy (particularly, natural gas). The uncertainties associated with the IEO2000 reference case projections are significant. Changes in the prospects for sustained economic recovery in developing Asia, Japan's economic turnaround, China's economic reforms, and economic recovery in Brazil, other Latin American economies, and the FSU could lead to oil market behavior quite different from that portrayed in the IEO2000 projections. Growth in Oil Demand World petroleum consumption projections are slightly lower in IEO2000 than in last year's forecast in the early years (about 1 percent in 2005), due to the much higher oil prices expected in the near term, as well as the lingering effects of the economic slowdown in Asia, Central and South America, and Russia. World oil consumption is expected to increase by 1.1 million barrels per day in 1999 [2], exceeding the increase of 0.5 million barrels per day in 1998 but lower than the average annual increase of nearly 1.6 million barrels per day from 1994 to 1997. Oil provides a larger share of world energy consumption than any other energy source, at 39 percent of the total in 1997. Petroleum is used heavily in the transportation sector and is also used to provide heat and power as well as industrial feedstocks. World oil consumption is projected to increase by a total of 39.8 million barrels per day (an average rate of 1.9 percent per year), from 73 million barrels per day in 1997 to 112.8 million barrels per day in 2020 (Figure 31). Between 1970 and 1997 oil use rose by a total of 26.2 million barrels per day, an average annual increase of 1.7 percent; and the 1970-1997 growth might have been still larger without the price shocks of 1973-1974 and 1979-1980. Oil's share of the energy market is expected to decline only slightly over the forecast period. Figure 31. World Oil Consumption by Region, 1970-2020 [Sources] --- from list [EMAIL PROTECTED] ---
