Often you will hear people say, “Oh, non-OPEC supply is down this month because of hurricanes in the GOM.” Or, “non-OPEC got hit this month with that pipeline attack.” Or, “that drop in non-OPEC is from the Russian export duties staying high, as oil dropped.”
But that’s the point. That’s non-OPEC supply for you. It’s all the hard to get, severe climate, deep-water, technically challenged, weather dependent, oil.
non-OPEC Production in Mb/day
2002 Average 39.520
2003 Average 40.299
2004 Average 40.989
2005 Average 40.799
2006 Average 40.850
2007 Average 40.844
2008 Average 40.461
As you look at the above numbers, let’s recall the strong price incentive that was available during those years when production stayed flat. Obviously, obstacles are a key feature of non-OPEC supply.
As price falls from its July highs, then, it makes sense that non-OPEC production is now tanking. For August and September, we’ve now slipped back below the 2002 production average and my call has been we will go back to 1998 or 1997 levels.
You’ve got a situation where non-OPEC struggled to stay above 40 Mb/day for 6 years, occasionally getting as high as 41 Mb/day.
In August however, non-OPEC slipped to 39.702 Mb/day and now September has tanked to 39.152 Mb/day.
Those are the lowest monthly prints since 2002.
Were there hurricanes in the Gulf of Mexico? Sure. But North Sea oil also fell hard from the July highs. And we know that Mexico continues to fall, and that Russia is falling. Some of the declines are involuntary. Other declines are now responding to price.
There is going to be a supply crunch next year, even as global aggregate demand is now tipped by IEA Paris to grow only by 0.5%, and even as OPEC spare capacity builds. While OPEC spare capacity may build by 2-3 Mb/day, I think non-OPEC could lose as much as 4 Mb/day.
The calls for Russia and Saudia Arabia to set a floor at 75.00/bbl will strike many as outrageous. However, a price floor would be a huge favor to a world that will be hit hard with a price spike should any amount of demand return in 2009.
-Gregor
