IEEJ: May 2013 All Right Reserved
Special Bulletin

A Japanese Perspective on the International Energy Landscape (131)May 17, 2013

Key Points of International Oil Market Prospects in IEA Medium-Term Oil
Market Report
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn May 14, the International Energy Agency released its Medium-Term Oil Market Reportprojecting world oil supply and demand up to 2018. Famous IEA oil market outlooks include theMonthly Oil Market Report (a short-term outlook) for the coming one to two years and the World
Energy Outlook, which is published annually as the IEA’s “flagship publication” to cover a longterm prospect up to 2035. But the medium-term outlook, whose previous edition was released abouta year ago, has also attracted attentions from experts as a report that takes into account a
medium-term trend of the world economy and the oil market investment cycle (including various oil
supply projects over the next five years). I would like to present an overview of key points of theinternational oil market prospects up to 2018 while referring to the outlook.
The most important point of the latest medium-term outlook compared with the previous
one is that the report indicates that the fundamental global oil supply-demand balance will ease
thanks to a robust expansion of non-OPEC oil supply including U.S. light tight oil. As a matter ofcourse, it may be very difficult to accurately predict what will happen in the actual oil market overthe next five years. Given various present developments, however, the abovementioned supply anddemand change can be predicted as a medium-term trend.
First, I would like to analyze the demand side. The medium-term outlook forecasts that
global oil demand will expand from 90.6 million bpd in 2013 to 96.7 million bpd in 2018. The
increase of 6.1 million bpd for the five years translates into an average annual rise of 1.22 million
bpd. Compared with an actual increase of 0.83 million bpd in 2012 and an estimated rise of 0.82
million bpd in 2013, the forecast indicates that oil demand growth will firm under global economic
growth over the medium term. Meanwhile, the latest outlook revises the oil demand projectionslightly downward to 95.60 million bpd, from 95.68 million bpd in the previous one, for 2017 whichis covered by both outlooks. But the regional breakdown includes greater revisions. The latest
outlook lowers an OECD demand forecast by 0.69 million bpd and raises a non-OECD demand
estimate by 0.62 million bpd. These upward and downward revisions are based on the world
economic trend and vehicle fuel efficiency improvements over the past year. While the downward
revision of OECD demand is interesting, a breakdown of non-OECD demand shows that Asia
accounts for 0.31 million bpd or a half of the 0.62-million-bpd upward revision while Africa features
an even greater upward revision of 0.35 million bpd. These major revisions indicate that we may
have to pay attention to oil demand trends in OECD countries, Asia and Africa.
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While global oil demand projections are slightly lowered, non-OPEC oil production
projections are raised substantially. For 2017 covered by both the latest and previous outlooks, thelatest report forecasts non-OPEC production at 58.62 million bpd, up 1.09 million bpd from aprojection in the previous outlook. As crude oil prices have remained high, many non-OPEC oil
producing countries have increased output. But the upward revision primarily reflects growing lighttight oil output in the United States. While overall U.S. oil production is projected to rise by 1.92
million bpd from 10.00 million bpd in 2013 to 11.92 bpd in 2018, light tight oil output alone isforecast to expand by 2.30 million bpd from 1.70 million bpd to 4.00 million bpd. Light tight oilproduction is thus driving the overall U.S. oil output growth. Based on actual oil market
developments in the past year, the substantial increase in U.S. tight oil output has led to the upwardrevision of oil output projections in the medium-term outlook.
The latest medium-term outlook features a downward revision of the projected call on
OPEC (demand for OPEC crude oil) that is attributable to the slight downward revision of oil
demand forecasts and the upward revision of non-OPEC oil output forecasts. For 2017 covered byboth the latest and previous outlooks, the projected call on OPEC is revised downward by 1.22
million bpd from the previous one to 29.99 million bpd. The call on OPEC is projected to level off
from 30.12 million bpd in 2012 and 29.59 million bpd in 2013 to 29.99 million bpd in 2017 and30.37 million bpd in 2018. Over the coming five years, the call on OPEC is predicted to fail toincrease, indicating an unfavorable situation for the international oil exporters.
Even under such situation, Iraq among OPEC countries is expected to continue expanding
oil production capacity. Irrespective of whether oil production capacity would increase just asplanned officially by the Iraqi government, the capacity is likely to steadily expand. The latest
medium-term outlook estimates that Iraqi oil production capacity will post a substantial increase of
more than 1.50 million bpd from 3.52 million bpd in 2013 to 4.76 million bpd in 2018. While Iraq’s
actual expansion of oil production capacity, output and exports is destined to depend on security
conditions, progress in international oil companies’ investment in expanding production capacity,and export and other infrastructure development, Iraq’s oil output expansion under the predicted oil
supply and demand situation can be expected to exert great pressures on the market.
As crude oil prices have remained above $100 per barrel since 2011, the international oil
market has seen signs of various supply and demand changes and various developments. Particularly,
we may have to closely watch widespread impacts of the sharp increase in U.S. light tight oil output
and the entire shale revolution on international energy markets. For OPEC including Iraq thatcontinues to expand oil output, the medium-term international oil market environment has grown
more uncertain, with various supply and demand challenges accumulating.

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