North American Oil Supply Jolts Global Markets

The International Energy Agency (IEA) released its annual Medium-Term Oil Market Report (MTOMR) today. I doubt if it will surprise anyone who has been paying attention to the energy markets, but the report’s main assertion is that:

The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15.

IEA Executive Director Maria van der Hoeven introduced the report at the Platts Crude Oil Summit in London by saying:

The good news is that this is helping to ease a market that was relatively tight for several years. The technology that unlocked the bonanza in places like North Dakota can and will be applied elsewhere, potentially leading to a broad reassessment of reserves. But as companies rethink their strategies, and as emerging economies become the leading players in the refining and demand sectors, not everyone will be a winner.

The IEA report makes the following prediction for the North American oil supply:

The MTOMR forecasts North American supply to grow by 3.9 million barrels per day (mb/d) from 2012 to 2018, or nearly two-thirds of total forecast non-OPEC supply growth of 6 mb/d. World liquid production capacity is expected to grow by 8.4 mb/d – significantly faster than demand – which is projected to expand by 6.9 mb/d. Global refining capacity will post even steeper growth, surging by 9.5 mb/d, led by China and the Middle East.

The rapid emergence of the rising oil supply will play havoc with the development of other energy sources such as the renewables. It will be extremely interesting to watch how the various energy markets evolve.

For an overview of the MOTR, go to – http://www.iea.org/media/news/MTOMR_2013_OVERVIEW.pdf