OREANDA-NEWS. February 13, 2015. New forecasts this week from OPEC and the International Energy Agency suggest that lower oil prices will have a significant impact on non-OPEC oil supply later this year.

On February 9, OPEC slashed its forecasts of demand for non-OPEC crude in 2015 and raised its expectations of the call on its own crude. OPEC has maintained its expectations of world oil demand averaging 92.32 million b/d this year, with year-on-year growth broadly stable at 1.17 million b/d.

But it has cut its previous forecast for non-OPEC supply by 400,000 b/d to 57.09 million b/d and now expects non-OPEC supply to grow by just 860,000 b/d this year rather than the 1.27 million b/d it forecast a month ago.

OPEC has revised non-OPEC supply downward in all four quarters, but has made the bigger revisions in the second half of the year, with the third- and fourth-quarter forecasts revised downward by 510,000 b/d and 670,000 b/d respectively.

As a result of these quarterly revisions to the forecasts for non-OPEC supply, OPEC has been able to adjust its projections of the call on crude produced by its 12 members back above 30 million b/d in the second half of 2015, to 30.1 million b/d in the third quarter and 30.64 million in the fourth.

Coming in the wake of a slew of capital spending cut announcements from major oil companies, OPEC's latest forecasts would appear to suggest that the controversial market share strategy driven by Saudi Arabia is working in its favor.

The IEA has taken a longer look at the impact of the price collapse in its Medium-Term Oil Market Report, released on February 10, making sharp revisions to its forecasts for non-OPEC oil supply over the next few years as low prices bite into capital spending plans.

The Paris-based agency now expects non-OPEC supply to expand by just 2.93 million b/d between 2014 and 2019, 1.88 million b/d less than forecast in June last year.

Between 2014 and 2020, growth is forecast at 3.41 million b/d.

On an annual basis, non-OPEC supply is expected to grow by 570,000 b/d per year, well below record growth of 1.9 million b/d in 2014 and down from an average 1 million b/d over 2008-2013.

The oil price plunge -- from as high as \\$115/barrel for Dated Brent in mid-June last year to as little as \\$45.19/b in mid-January -- has been punctuated by debate over the fate of US high-cost shale or light tight oil, which has reversed the downtrend in US crude production and dramatically reduced reliance on imported crude.

Indeed, says the IEA, US production will provide much of the price response, with growth light tight oil nearly grinding to a halt in the second half of this year compared with the first six months.

Momentum

But US light tight oil will regain momentum in the latter part of the decade as prices recover, with output forecast to climb to 5.2 million b/d in 2020 from 3.6 million b/d in 2014.

The downward revisions to the non-OPEC forecasts won't, however, translate into significantly higher demand for OPEC crude, because global oil demand will also grow much more slowly as sharply lower oil prices fail to offset the impact of weaker-than-expected economic recovery in key markets, according to the IEA, which is forecasting an average growth rate of 1.2% over the next six years, well below the average for the 2001-2007 period.

The IEA sees demand for OPEC crude, including movements in and out of stocks, remaining below 30 million b/d through this year and next -- lower than forecast in June last year.

After 2017, though, the call on OPEC will be higher than previously forecast and will climb above 32.12 million b/d in 2020, representing growth of 2.7 million b/d over the entire forecast period.

Among non-OPEC producers, Russia is particularly vulnerable to the oil price collapse and will see its production contract by 560,000 b/d between 2014 and 2020, according to the IEA.

Among OPEC producers, the IEA sees Venezuela, which is already in the grip of recession, as perhaps the hardest hit by the price crash, with social stability at risk and competing demands for cash drying up the capital available for upstream investment.