Crude oil prices recently settled at levels around the $100 per barrel mark. Relatively speaking, oil prices have been more stable compared to violent fluctuations in the prices of other commodities, gold, and currencies. Yet despite this stability, there are important changes taking place at the level of the global oil industry. The supply of oil and petroleum liquids from non-OPEC members is increasing noticeably, by as much as 1.7 million barrels per day during the third quarter of the year compared to the third quarter of 2012, according to the International Energy Agency. This marks the highest increase of oil supplies from outside OPEC in any quarter of any year in the past 10 years. The increase is expected to continue next year, also to the tune of 1.7 million barrels per day. It was expected that the increase would reach a record level in the second quarter of 2014, and reach 1.9 million barrels, making it the highest increase in output of non-OPEC countries since the 1970s. Since the increase in output from outside OPEC is led by the United States, which produced more than 10 million barrels per day in the past two quarters – the highest output of the country in decades – it is expected that the United States would jump to the highest oil production level from outside OPEC, overtaking Russia, which had occupied first place for years. But why has there been this increase in prices (above $100 per barrel), with this many additional supplies made available from outside OPEC countries? The answer lies in the significant decline in Libya's output, by more than 1 million barrels per day, because of the security chaos following the ouster of the regime of Muammar Gaddafi, as well as in the fluctuation in Iraqi output, and interruptions in Sudanese oil supplies. Thus, supplies from outside OPEC and major Gulf oil producers with surplus productive capacities helped prevent prices from soaring to much higher levels, which would have threatened the recovery of the global economy, as it still reels from the crisis of 2008. These fluctuations in supplies have cast a shadow on the markets, where there are concerns about offsetting OPEC oil supplies with non-OPEC supplies, seeing as this is a new phenomenon that the markets have not experienced since the 1980s. The anxiety is caused by the fact that non-OPEC countries produce at full capacity, without reserving a spare productive capacity for contingencies, such as industrial disturbances or military conflicts. Meanwhile, many refineries, especially in Europe, rely on light low-sulfur crude from Libya, which is compliant with tough European environmental laws. The companies importing Libyan oil found difficulties in offsetting this type of oil in particular. The increase in oil supplies from outside OPEC has coincided with investments worth billions of dollars annually in OPEC member states to increase their productive capacity. This means that there will be strong competition in the future to maintain markets and prices. There was a similar experience in the 1980s, when the production of non-OPEC countries rose greatly and rapidly, leading to a collapse in prices at the end of that decade. But one problem lies in the fact that OPEC member states decrease their output when prices deteriorate, and also in the fact that they do not produce at full capacity, in order to maintain a reasonable spare productive capacity. Meanwhile, countries outside OPEC produce continuously at full capacity, especially when prices decline, in an attempt to maintain a sufficient level of revenues that would meet their budgetary needs. There is also a fundamental change playing out in the demand for oil. Indeed, the annual increase in traditional industrialized countries is very limited, and is even following a downward trend in some countries. The increase in some countries reached no more than 2 to 3 percent annually, for a multitude of reasons, including the gradual shift towards the more eco-friendly natural gas, and the successive economic crises since 2008, which have left a dent in the demand for oil but also in living standards. In emerging countries, annual consumption continues to increase at record high levels, amounting to 7 to 10 percent annually. Consumption in emerging countries, oil-producing countries, and Third World nations rose recently, outpacing consumption in industrialized nations, due to improving economic performance and the living standards of the billions of people who inhabit these countries – which previously suffered from poverty for long periods of time, and whose populations grow at high rates annually. Oil consumption per capita in some industrialized countries has been declining remarkably. Recently, the Italian energy group Eni published a report on oil consumption growth, showing that oil consumption per capita declined from 24.48 barrels per year in 1995 to 21.94 barrels in 2012 in the United States, and from 16.57 barrels per day to 13.53 barrels per day in 2012 in Japan. In China, the rate increased from 1.03 barrels in 1995 to 2.59 barrels in 2012, and in Saudi Arabia, from 26.38 barrels in 1995 to 38.29 barrels in 2012. It is worth noting that the balance of supply and demand requires taking into account many factors and variables, including, for example, the natural depletion of productive oil fields at an average of 4.5 percent annually, and the continuous increase in demand for oil. It is therefore incumbent upon productive countries and international companies to find new fields to compensate for the depletion, and recover new supplies by using modern techniques. This is indeed happening at astounding speed and power, supplying markets with shale oil, biofuel, and drilling for oil in oceans and seas at depths of more than 20,000 feet under the surface. This is in addition to developing refineries to process extremely heavy crude oil, which is available in many countries, most notably Venezuela. *. Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
