October's oil production numbers show an increase

The recent increase in Chinese imports of oil, (they imported 20 million tonnes of crude (the equivalent of 4.7 mbd) in December, is being blamed for the increase in crude prices to over $84 a barrel today, early as it is in the New Year. China has also increased its purchases from Africa, up from 1.58 mbd in December to 1.9 mbd in January. Given that it is now a significantly larger market for cars and trucks, with some 13.6 million units (the USA had 10.4 million) having changed hands last year, the roiling of the international trade in oil products may just be seriously starting. And in the process I may be proved to be a little in error over my view of future production and prices.

The increase in Chinese purchases has been clear for some time, as has their agreement with Saudi Arabia to increase purchase levels. As a result the world is rapidly returning to the production levels that were achieved before the financial recession. Going to the EIA web page, for example, the figures released today (which are only compiled through this past October), show that peak world production was in July 2008 (note that this counts all liquids, including ethanol, and NGLs). At that time total production was 86.620 mbd, of which OPEC produced 36.412 mbd and the USA some 8.83 mbd. This time last year production was at its lowest over the last couple of year at some 83,145 mbd, OPEC was at 33.402, and the USA at 8.731 mbd.

By October, however, world production had returned to 85,302 mbd. This is sensibly the average value for 2008, and some 1.3 mbd above the average, to date, for 2009. OPEC production was running at 34.381 mbd. Non-OPEC production, which has been bouncing around 50 mbd since December 2003, and which has been predicted to be in terminal decline, did reach a new peak (according to the EIA) of 50.921 mbd in October. However, the general prediction for non-OPEC production relates to crude oil production, rather than all liquids, which is the EIA figure.

It would thus appear that we are within 1.3 mbd of reaching a new record for production (and this was for last October, and as I noted above sales in December were significantly up in China).
UPDATE Stuart has a post on the growth of Chinese car ownership and more, today.

The numbers for crude oil alone are obviously lower. In July 2008 world production was 74.746 mbd, with 33.138 mbd of production from OPEC; after a nadir of 71.43 mbd last May, when OPEC was at 30.399 mbd, by October production was back up to 73.121 mbd, with OPEC at 31.012 mbd. The difference between peak and October is 1.6 mbd.

Until now I have anticipated that we would not revisit the levels of production that we were at when oil reached $147 a barrel (which was in July 2008) for at least another year. Depending on how you view these levels of production, that pessimism about the growth or regeneration of the world economy for which this might be considered to act as a proxy appears that it might be too conservative a view. We may well exceed the current maximum values by sometime this summer, when we usually see peak annual demand.

The question will then become one of the availability of the market to meet the higher levels of demand, and can this be done without returning to the high prices that were encountered the last time around. And with those questions comes the slightly longer term one as to how much higher world oil production can be raised, before we bump into a physical production limit. I tend to believe the generalized view that non-OPEC production is at a peak if not, over a sustained period, just about past it. But even if non-OPEC overall production level is sustained or slightly increased, this will still throw the burden of meeting significant increases in global demand on OPEC, and this re-opens the debate over how much additional oil that they can bring to the market, given the slow release of the production quotas under which they have been operating for the past year. (Saudi Arabia, for example, which peaked at 9.7 mbd in July 2008 and dropped to 8.062 mbd in February of 2009, crept back up to 8.54 mbd in July and was at 8.34 mbd in October. (Over this period Russian production has steadily increased, with October levels reaching 9.629 mbd, and this is the non-OPEC factor).

Well those are the numbers, they are moving up faster than I had expected, and I’m afraid it will likely mean that higher gas prices will come faster than I had expected to be the case. That is because you don't get these levels of production unless someone is buying and using the product. It will at least also, as demand rises, show whether the claims that have been heard about the current global reserve are true, and whether – if gas prices do rise, whether and when they will impact the global financial recovery.