In July 2014 the average Brent crude oil spot price averaged at US$ 107 /bbl and signalled the thirteenth month in which the average price has been in the US$ 107 – 112 range. Supply growth from non-OPEC countries has outpaced global consumption over the past year, however, its potential price reducing effect has been offset by numerous unplanned outages amongst OPEC member countries. This has resulted in tight global oil markets and upward pressure on oil markets.
The above price stability has been unheard of when considering the volatile oil price fluctuations experienced two years ago. Then Brent spot prices fell between US$ 125 /bbl in March 2012 and US$ 95 /bbl in June 2012. Implied volatility, which is a measure of expected price variation, for near month Brent futures contract has averaged 18% over the last year, compared to 28% during the previous two.
OPEC versus non-OPEC
Over the past two years, the majority of non-OPEC supply growth has come from North America where supply rose from 14.7 million bpd in July 2012 to 18.2 million bpd in July this year. The increase is mostly due to growing crude oil production from US tight oil formations, and has led to reduced petroleum imports. The cutback has freed bbls that were previously imported for non-US consumption. As a result, Brent crude oil prices dropped from an average of US$ 112 /bbl in 2012 to US$ 109 /bbl in 2013.
Since June last year, OPEC supply has dropped by 0.6 million bpd, dropping in 7 of the past 13 months. This is primarily attributed to unplanned supply disruptions caused by political unrest in Libya and Iraq.
In spite of OPEC supply disruptions and tighter oil balances around the world the US EIA expects continued strong growth in non-OPEC supply to place downward pressure on Brent rude oil prices. This will cause them to gradually drop through next year. The EIA also forecasts that total world petroleum and other liquids supply is going to increase by 1.5 million bpd and 1.3 million bpd in 2014 and 15 respectively. Brent oil prices on the other hand are forecast to fall from an average of US$ 108 /bbl this year to US$ 105 /bbl next year.
Edited from US EIA Today in Energy by Claira Lloyd
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