# Presentation: 868309

## Oil Market Outlook

**November 15, 2004**
**Washington, DC**

***Oil Market Outlook***

- Guy Caruso
- Administrator
- Energy Information Administration
- Meeting of the World Bank Board of Directors

## Crude Oil Price Projections

**Short-Term Energy Outlook, November 2004**

## Annual U.S. and World Oil Demand Growth

**Proj.**

**Notes:**
Annual world oil demand growth averaged just over 1 million barrels per day in the 1990’s, but fell sharply in 2002. Demand regained  strength in 2003, rising by over 1.2 million barrels per day,  and is projected to rise by 2.8 million barrels per day in 2004 to 82.5 million barrels per day and about 2 million barrels per day in 2005.  The tendency recently has been to revise demand estimates upwards.

In particular, Chinese demand growth has shown remarkable strength. Demand is now projected to grow by 1 million barrels per day in 2004 before slowing to half that rate in 2005 as a result of efforts by the Chinese government to slow demand growth.

US demand is forecast to grow around 400,000 barrels per day in 2004, but closer to 200,000 barrels per day in 2005.

## U.S. Petroleum Products Demand Growth(Change from Year Ago)

** ****1.4%**

**2.0%**

**1.0%**

**Short-Term Energy Outlook, November 2004**

**Notes:**
Total U.S. petroleum demand is projected to average 20.4 million barrels per day this year, a 2.0 percent increase from the 2003 average.  Further growth of 1.0 percent is expected for 2005.  

This increase is led mainly by transportation fuels.  For both 2004 and 2005, motor gasoline demand growth is projected to average 1.5 percent per year; jet fuel demand growth is projected to average a robust 2.7 percent, reflecting air traffic growth of 4.8 percent per year; distillate fuel demand growth is projected to average 2.2 percent. 

## Non-OPEC Supply (Change from Year Ago)

- Non-OPEC Supply (Change from Year Ago)

**Proj.**

**Notes:**
Growth in non-OPEC supply has helped meet higher demand.  Non-OPEC production rose by 0.9 million barrels 2003 and 1.2 million barrels per day in 2004 (projected), before slowing in 2005 to 1.0 million barrels per day.  Growth in non-OPEC supply is less than the projected growth in world oil demand.

Increased production from Russia and the Caspian accounts for over 70 percent of the total non-OPEC increase in 2004 and 2005. Production in Russia and Caspian (combined) is expected to rise by 1.0 million barrels per day in 2004, and by 0.7 million barrels per day in 2005.  Angola and Brazil are also expected to increase production in 2005.

## Yearly OPEC Crude Oil Production 

**Proj.**

**Notes:**
OPEC has been producing at record levels in recent months in an effort to cool off world oil markets. OPEC crude production in October reached 29.9 million barrels per day, the highest level since the late 1970’s.

To meet demand, OPEC is expected to produce crude oil at a level of 29.7 million barrels per day in 2005 (up from an average of 29.1 million barrels per day in 2004). This would be an increase of 2.6 million barrels per day over 2003 production.

## World Oil Spare Production Capacity

**Proj.**

**Notes:**
Spare world oil production capacity of 1 million barrels per day in 2004 (on average) is near its lowest level in three decades.  This compares with an average of about 3 million barrels per day during the 1990’s. 

Spare capacity for October-November 2004 is even lower at 0.5-1.0 million barrels per day, all of it located in Saudi Arabia.

## OECD* Commercial Petroleum Stocks

**Short-Term Energy Outlook, November 2004**

- *Organization for Economic Cooperation and Development

**Notes:**
The overall level of  global petroleum inventories, both in the United States and in the rest of the industrialized world, remains below normal, particularly when looked at in the context of rapidly increasing global oil demand.  

OECD commercial inventories at the end of October stood at 2.57 billion barrels, equal to 31 days at the average 2004 consumption rate, and 33 million barrels below the middle of the 5-year average.

Gradual increases in overall stock levels toward historical averages is evident in 2005, although forward coverage worsens slightly to under 31 days at 2005 consumption rates by the end of October 2005.

## The World’s 15 Largest Oil Suppliers, 2004

**The World’s 15 Largest Oil Suppliers, 2004**

- Source:  EIA, *Short-Term Energy Outlook *(October 2004)

**Notes:**
In 2004, Saudi Arabia produced an estimated 10.2 million b/d of the world’s oil supply. Russia supplied 9.1 million b/d and the United States 8.8 million b/d. 
Of the 10 countries that produce more than 2 million barrels per day, five are from the Middle East.
As you can see from the list, many of the countries, including Iraq, Nigeria, Venezuela, and Russia face uncertainty about near term oil flows.
In 2004, seven of the top 15 world oil suppliers are OPEC-member countries; but substantial supplies are provided by non-OPEC producers, such as the United States, Mexico, China, and Canada.

## World Marketed Energy Consumption by Region, 1970-2015

- World Marketed Energy Consumption by Region, 1970-2015

**Notes:**
Turning to our mid-term forecast, world energy consumption is expected to grow by 1.8% annually to 517 quadrillion Btu by 2015. The developing world accounts for most of the growth in world energy use and in 2015 accounts for 39% of the world’s energy consumption, compared to 34% in 2001. The industrialized world accounts for 48% in 2015, compared to 52% in 2001.  The share consumed by Eastern Europe and the former Soviet Union (EE/FSU) also declines from 13% to 11%.
The IEO2004 mid-term outlook continues to show robust growth for energy among the developing nations of the world, particularly in developing Asia (including China and India), where demand for energy is expected to double over the 14-year projection period. Developing Asia alone accounts for 71 percent of the growth in energy use in the developing world. The gap between consumption in the developing world and the industrialized world is expected to continue to narrow over the 2001-2015 projection period. 
In contrast to the developing world, slower growth in energy demand is projected for the industrialized world, averaging 1.2 percent per year over the forecast period, as compared to the developing world’s 2.7 percent per year growth. Generally, the nations of the industrialized world can be characterized as mature energy consumers with comparatively slow population growth.  Gains in energy efficiency and movement away from energy-intensive manufacturing to service industries result in the lower growth in energy consumption.  
In the EE/FSU energy demand is projected to grow by 1.4 percent per year in the IEO2004 reference case.  Declining population in this region, combined with strong projected gains in energy efficiency as old, inefficient equipment is replaced, leads to the projection of more modest growth in energy use than in the developing world.  

## World Primary Energy Consumption by Fuel Type, 1970-2015

- Share of
- World
- Total

|  |  |
| --- | --- |

**Notes:**
Oil continues to be the dominant energy source.  Oil’s share of world energy remains unchanged at 39% through 2015.  Natural gas grows over the projection period, capturing 24% of the world’s energy use by 2015, up from 23% in 2001. 
In the industrialized world, increases in oil use are projected primarily in the transportation sector, where there are currently no available fuels to compete significantly with oil. In the developing world, demand for oil increases for all end uses, as countries replace non-marketed fuels used for home heating and cooking, with diesel generators and for industrial petroleum feedstocks.
Natural gas is projected to maintain average annual growth of 2.0 percent over the forecast period, capturing 24 percent of the world’s energy use by 2015. Gas is seen as a desirable option for electricity, given its efficiency relative to other energy sources and the fact that it burns more cleanly than either coal or oil, making it a more attractive choice for countries intent upon reducing greenhouse gas emissions.
Coal remains an important fuel in the world’s electricity markets and is expected to continue to dominate fuel markets in developing Asia. Coal’s share of world energy consumption declines slightly in the IEO2004 reference case, from 24 percent in 2001 to 23 percent in 2015.  Coal use is projected to increase in all regions of the world except for Western Europe and the EE/FSU (excluding Russia), where coal is projected to be displaced by natural gas and, in the case of France, nuclear power for electric power generation.
The highest growth in nuclear generation is expected for the developing world, where consumption of electricity from nuclear power is projected to increase by 5.7 percent per year between 2001 and 2015.  Developing Asia, in particular, is expected to see the largest increment in installed nuclear generating capacity over the forecast, accounting for 93 percent of the total increase in nuclear power capacity for the developing world as a whole. In the industrialized world and the EE/FSU, extensions of operating licenses (or the equivalent) slow the decline in nuclear generation. 
Consumption of electricity from hydropower and other renewable energy sources is expected to grow by 2.1 percent per year over the 2001-2015 projection period. Much of the growth in renewable energy use is expected to result from large-scale hydroelectric power projects in the developing world, particularly among the nations of developing Asia. China, India, Malaysia, and Vietnam are already constructing or have plans to construct ambitious hydroelectric projects in the coming decades.

## World Energy Use in the Transportation Sector, 2001-2015

**Notes:**
Worldwide energy use in the transportation sector is expected to outpace total oil use over the 2001-2015 period, growing by 2.1% per year, compared to 1.9% per year for total oil use. In the United States, transportation accounts for around 68% of total oil use at present; by 2015, this rises to 71%. 
Oil use for uses other than transportation is important to countries in the developing world and this is expected to remain the case.  Transport accounted for 46% of total oil use in the developing world in 2001 and this grows only slightly to 47% in 2015. Developing countries are expected to switch away from traditional fuel sources (such as wood burning) to petroleum products and natural gas. Oil use in the developing world is thus likely to grow in all end use sectors over the 2001 to 2015 forecast.

## World Oil Prices in Three Cases, 1970-2015

- Source:  EIA, *International Energy Outlook 2004*

**Notes:**
In our reference case, by 2015 world oil prices are expected to approximate $25 per barrel in 2002 dollars (or $34 per barrel in nominal dollars). 
In the low price case, prices are projected to be $17 per barrel (in 2002 dollars) in 2005, where they remain through 2015.  In the high price case, prices are projected to reach around $34 per barrel (in 2002 dollars) by 2015 (or $47 per barrel in nominal dollars).

The projected leveling off in the high price case is due to the market penetration of alternative oil supplies that could become economically viable at that price (such as liquids from oil sands, natural gas, coal, biofuels, and oil shale).  The reference case assumes that prices remain in the OPEC price ban.  The low price case assumes that all suppliers are competitive in the market place.
In all the IEO2004 oil price cases, oil demand is expected to rise significantly over the 2001 to 2015 forecast period.  In the high and low world oil price cases, the projected rise in oil consumption ranges from a low of 18 million barrels per day to a high of 33 million barrels per day, respectively.  There is widespread agreement that resources are not a key constraint on world demand to 2025.  Rather more important are the political, economic, and environmental circumstances that could shape developments in oil supply and demand.

## World Oil Consumption and Production, 2001, 2010, and 2015

**Notes:**
Oil consumption is projected to rise by 1.9 percent per year over the 14-year forecast period, from 77 million barrels per day (b/d) in 2001 to 101 million b/d in 2015.
The United States, China, and the other nations of developing Asia account for 60 percent of the increase in oil in the 2001-2015 period.
The projected increases in worldwide oil use would require an increment of 21 million b/d over productive capacity in 2001.  OPEC producers are expected to raise capacity by 9 million b/d and be the major suppliers of increased production requirements, but non-OPEC production is expected to remain competitive and rise by 18 million b/d, with major increments of supply coming from offshore resources, in the Caspian Basin, Latin America, and deepwater West Africa.
Although the nations of the industrialized world continue to consume more of the world’s oil than do those of the developing world, the gap is projected to narrow considerably over the forecast period.  In 2001, developing nations consumed about 64 percent of the oil consumed in the industrialized world, but by 2025 they are expected to consume 94 percent as much oil as the industrialized world. Developing Asian oil consumption is expected to grow from 14.8 million barrels per day in 2001 to 31.6 million barrels per day in 2025, an increase of 16.9 million barrels per day and representing 39 percent of the total world increment in oil use over the projection period.                                                                                                                                                                             

## U.S. Dependence on Imported Oil, 2002, 2010, and 2015

- Source:  EIA, *International Energy Outlook 2004*

**Notes:**
By 2015, the United States is expected to rely on net imports to meet 63% of its oil demand. U.S. dependence on Middle East oil increases slightly from 2002 to 2015.  In 2002, Middle East OPEC member countries accounted for 23% of total U.S. imports; by 2015 this will rise to 26%.  
U.S. dependence on OPEC as a whole increases from 46% to 52% from 2002 to 2015.  In 2002, the United States imported 5.2 million barrels per day from OPEC member countries, but by 2015 this grows to 8.9 million barrels per day.
Non-OPEC suppliers remain an important source for U.S. oil imports.  Non-OPEC imports into the United States rise from 6.1 million barrels per day in 2002 to 8.3 million barrels per day in 2015. Although the non-OPEC share of total U.S. oil imports falls over this time period, non-OPEC oil producers remain an important component to the U.S. oil supply. By 2015, non-OPEC imports to the United States account for 48% of total U.S. oil imports.

## World Oil Reserves by Country, as of January 1, 2004

- Source:  "Worldwide Look at Reserves and Production."*Oil & Gas Journal*,
- Vol. 100, No. 49 (December 22, 2003), pp. 46-47.

**Notes:**
Oil resources are adequate to meet growing oil demand to 2015. 
OPEC accounts for 69 percent of the world’s proved oil reserves, and six of the seven countries with the largest proved reserves are OPEC members and alone account for 61 percent of the world’s oil reserves. The Middle East (including OPEC and non-OPEC members) accounts for 58% of the world’s proved oil reserves.
According to Oil & Gas Journal, in January 2004, OPEC accounted for 870 billion barrels of the 1,266 billion barrels of the world’s proven oil reserves. 
The largest change in oil reserves between 2003 and 2004 occurred for Iran, based upon new information from the country’s energy ministry. Iran’s proved oil reserves had not been revised since 1999 and the 2004 revision represents a 36 billion barrel increment in reserves for Iran, which now stand at 126 billion barrels. Among the OPEC member countries, Algeria, Iraq, Kuwait, Nigeria, and Saudi Arabia also witnessed more modest increments in proved reserves between 2003 and 2004.  
Outside of OPEC, Mexico observed a 3 billion barrel increment in proved oil reserves in 2004; Canada a 1 billion barrel decrement, with about half attributed to declines in crude and condensate reserves (according to the Canadian Association of Petroleum Producers) and half from its oil sands reserve estimates (according to the Alberta Energy and Utilities Board). 

## Nonconventional Oil Production in Three Price Cases, 2001-2015

**Notes:**
In the IEO2004, nonconventional oil production (including production from oil sands, ultra-heavy oils, gas-to-liquids technologies, coal-to-liquids technologies, biofuel technologies, and shale oil) increases by 3.2 million barrels per day by 2015, rising from 1.4 million barrels  per day in 2001 to 4.6 million barrels per day in 2015.
Nonconventional oil production penetrates more quickly in a high world oil price scenario, as sustained high world oil prices allow nonconventional sources to be economically competitive with conventional sources.  At sustained oil prices in the $30-$34 per barrel (constant 2002 dollars) range, as assumed in the IEO2004 high world oil price case, nonconventional oil production would be almost 25 percent higher in 2015 than projected in the reference case, reaching 5.7 million barrels per day.
Conversely, under the assumptions of the IEO2004 low world oil price case, nonconventional supplies cannot compete with conventional supplies at oil prices remaining in the $17 per barrel range. In this case, nonconventional oil production increases more slowly, reaching only 4.0 million barrels per day in 2015.

## Net Additions in World Oil Productive Capacity, 2001-2015

**Notes:**
Nearly 20 million barrels per day of oil productive capacity are expected to be added worldwide by 2015. Five of the top 12 countries projected to increase oil productive capacity by 2015 are OPEC member countries:  Saudi Arabia, Iraq, Kuwait, UAE, and Venezuela.
The largest increment in oil productive capacity is projected to occur in Saudi Arabia, where productive capacity grows by 4 million barrels per day over the 2001-2015 forecast period.
Substantial increases in production capacity are also expected in other Persian Gulf countries, notably Iraq (1.6 million barrels per day), United Arab Emirates (1.2 million barrels per day), and Iran (0.6 million barrels per day). Venezuela’s oil productive capacity increases by 1.1 million barrels per day by 2015.
Among the other OPEC countries, oil production capacity increases by 2.9 million barrels per day, from 10.2 million barrels per day to 13.1 million barrels per day.  Non-OPEC suppliers are expected to increase productive capacity by 4.7 million barrels per day between 2001 and 2015.

## Middle East Oil Productive Capacity by Country, 2001 and 2015

**Notes:**
In the IEO2004 reference case projection, Middle Eastern oil productive capacity increases from 24.4 million barrels per day in 2001 to 33.9 million b/d in 2015. 

The Middle East accounts for about 29% of worldwide oil productive capacity. By 2015, this share grows to 32%. 

Outside of the OPEC Middle East, Yemen, Oman, and Syria account for 500,000 barrels per day in added productive capacity between 2001 and 2015.

## Summary

- In the short-term, tight markets and political tensions keep world oil prices high.
- Through 2015, oil remains the dominant source of worldwide energy use (39% of total energy consumption).
- The U.S. and developing Asia (including China) account for 60% of the growth in world oil demand in the mid-term.
- Transportation will account for much of the growth in oil use in the industrialized world; in the developing world, oil demand grows in all end-use sectors.
- U.S. dependence on Persian Gulf OPEC will increase, but other OPEC and non-OPEC producers will remain important U.S. suppliers.