Wednesday, August 11, 2004

Highlights from the August Oil Market Report from the International Energy Agency were released today advancing some interesting tidbits.

According to the IEA, world oil supply in July 2004 was 83.5 mbd, up from 82.9 mbd in June (that number an upward revision from last month's estimate of 82.5 mbd). OPEC-10 was pumping 27.1 mbd in July, 97% of the IEA's estimate of its "sustainable production capacity". Adding Iraqi totals gives OPEC a tad more breathing room, dropping OPEC down to pumping at a mere 95% capacity.

While these figures put supply far ahead of 2004:III demand, things still look sticky for 2004:IV and especially 2005:I. The IEA revised global demand for all of 2004 upward by 1% in their latest report; a 1% jump in demand for the fourth quarter would put it at 83.7 mbd, above current levels of production. Producers will have to bring on extra capacity quickly, running faster just to stay in place; tapping into non-sustainable OPEC "surge capacity" may be in store for the winter.

The IEA held out hope in the form of slower growth in China and the US which should slacken the growing pace of demand in 2005. We all know the results from the second quarter GDP report in the US, and a decline in Chinese producer price inflation reported today suggests the Big Slowdown may already be upon us.

The long-term question is, of course, the future of OPEC. After letting every other member produce at 100% capacity for a year or more, can the Saudis resurrect quotas and put all their ducks back in a row in 2005?


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