IEA Slaps OPEC in the Face with 5-Year Oil Forecast

[Marina Schwarz + 1,576]

The IEA has forecast that growth in non-OPEC supply--the US. Canada, Brazil and Norway--will be enough to cover the growth in global oil demand. If I were OPEC I'd start considering suicide at this point. Sure, it's only a forecast and nothing is certain. Which is why I said "start considering" and not 'would have killed myself".

[Johnecon + 19]

I think the biggest slap in the face is the slow output growth predicted for OPEC after 2020, the year when the IEA believes that oil supply will fail to meet demand. Having lost market share in the meantime and no doubt wishing to regain it, and considering the development plans of Iran and other OPEC members, slow output growth from 2020 to 2023 is frankly incredible if the rest of the IEA's forecast holds true. 

[Rodent + 1,424]

Well, it would be hard to get back marketshare that has already been lost. Demand growth for the market OPEC now serves will of course expand through the years, but OPEC is going to find it hard to woo back any customers lost during the production cuts. 

[Johnecon + 19]

I am afraid I disagree. Market share is a flexible thing, merely one country's exports divided by the total of all countries' exports. Just as Iran and Saudi Arabia discount against each other in selected markets such as Asia or Europe they and others can undercut non OPEC members on price. There is no strong customer loyalty and no longer any uniqueness of blend now that operations in south east Asia are putting together equivalents of Brent, WTI and anything else that you chose. Also by definition a country which is holding back production can supply additional barrels immediately, whereas a country made up of individual free market producers cannot except by supplying from inventory. 

[Rodent + 1,424]

15 minutes ago, Johnecon said:

I am afraid I disagree. Market share is a flexible thing, merely one country's exports divided by the total of all countries' exports. Just as Iran and Saudi Arabia discount against each other in selected markets such as Asia or Europe they and others can undercut non OPEC members on price. There is no strong customer loyalty and no longer any uniqueness of blend now that operations in south east Asia are putting together equivalents of Brent, WTI and anything else that you chose. Also by definition a country which is holding back production can supply additional barrels immediately, whereas a country made up of individual free market producers cannot except by supplying from inventory. 

Yes, market share is flexible, but not immediately flexible. Look at the US, for example. Our refineries are incapable of immediately processing grades other than what they are currently equipped to do. But yes, markets are somewhat flexible, and some more than others. But I think US shale has proven pretty definitively that it can respond to demand (prices) very quickly--more quickly than OPEC thought it could. . And take Iran, for example. It had its marketshare eroded after sanctions. It took it a long time to ramp back up, and still had troubles.  I would think some countries would have an easier time than others. I would expect Saudi Arabia, which has the most spare capacity at the ready, would be able to respond the quickest.

[Rodent + 1,424]

Not to mention, what with the whole peak-oil forecasts that are out, sinking a lot of money into ramping up production longer term, countries may not be so apt to jump in to regaining lost marketshare. Rather, renewables, which we see even oil-heavyweight Saudi Arabia dipping its toes into, might be the next focus for countries who have lost shares. Maybe we've got this all wrong and this is a massive stroke of genius on behalf of OPEC who sees the writing on the wall. What better way to exit the market than to lift prices by restricting output, only to sink that revenue into the next phase of energy. 

Of course, I see conspiracies everywhere, as is my nature.

[Johnecon + 19]

I do not see the connection between US refinery configuration and US or any other country's market share of crude oil exports. The USA could stop exporting light crude oil and condensate altogether if it spent a lot of money on reconfiguring its refineries to run this domestic output. It would then import less heavy crude oil. Exports would be nil but net imports and therefore the USA's impact on global demand would be more or less the same as now. Global light oil prices would rise and heavy oil prices fall, however. Back to where we began this conversation I maintain that just as quickly as some customers replaced imports from OPEC with imports from the USA they could replace imports from the USA with imports from OPEC. As you rightly say, Saudi Arabia has the most spare capacity to contribute to this scenario. More relevant to crude of WTI quality, however, OPEC members such as Nigeria and Angola have economically marginal light oil reserves that could be developed in response to an improvement in fiscal terms without any need for an oil price rise.