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Next Issue: 12 September 2006
INTERNATIONAL ENERGY AGENCYAGENCE INTERNATIONALE DE L’ENERGIE
 11 August 2006
HIGHLIGHTS
 
 
Dated Brent reached a record high
of $78.69/bbl on 8 August, afterBP shut down the Prudhoe Bay field in Alaska to repair pipelineinfrastructure. Pipeline problems also increased Nigerian outages toaround 750 kb/d, with prices further supported by ongoing geopoliticalconcerns in the Middle East.
 
World oil supply
gained 615 kb/d in July to reach 85.5 mb/d. Revisionsdriven by an unscheduled shutdown of Alaska’s 400 kb/d Prudhoe Bayfield trim non-OPEC supply by 220 kb/d in 2006 and 30 kb/d in 2007.Non-OPEC output averages 51.1 mb/d in 2006 and 53.0 mb/d in 2007.
 
OPEC crude supply
in July fell by 225 kb/d to 29.8 mb/d on Venezuelanmaintenance and renewed outages in Iraq and Nigeria. Effective sparecapacity, currently 2 mb/d, could stay tight in the coming months if Nigerian and non-OPEC outages persist and OPEC raises output tocompensate. Though weakening in 2007, the adjusted ‘call on OPECcrude and stock change’ stays close to 30 mb/d through to 1Q07.
 
Global oil product demand
remains unchanged at 84.8 mb/d in 2006 asstrong 2Q Chinese demand was offset by downward adjustments to USdata and relative demand weakness in Europe and Japan. Chineseapparent demand was lifted in June by a spike in fuel oil demand andstronger-than-expected 2Q economic growth.
 
OECD total industry oil stocks
were unchanged in June at 2,664 mb asdraws in crude and other oils inventories were offset by increasing productstocks. OECD forward demand came to 54 days, unchanged from lastmonth and one day above last year. Total stocks increased by 0.74 mb/d(67 mb) in the second quarter, slightly below the historical 2Q average.
 
Refining margins
weakened in July, as refiners ended seasonalmaintenance and lifted throughput to meet peak summer demand. Whilea glut of fuel oil depressed hydroskimming margins, complex refinerymargins remain near historically high levels.
 
 
CONTENTS
 
HIGHLIGHTS.........................................................................................................................................1
 
CONTENTS............................................................................................................................................2
 
PUTTING IT INTO CONTEXT.............................................................................................................3
 
DEMAND...............................................................................................................................................4
 
Summary.............................................................................................................................................4
 
OECD..................................................................................................................................................5
 
Overview.........................................................................................................................................5
 
North America.................................................................................................................................6
 
Europe.............................................................................................................................................7
 
Pacific..............................................................................................................................................8
 
Non-OECD..........................................................................................................................................9
 
Overview.........................................................................................................................................9
 
China...............................................................................................................................................9
 
Other Non-OECD..........................................................................................................................10
 
SUPPLY................................................................................................................................................12
 
Summary...........................................................................................................................................12
 
OPEC.................................................................................................................................................13Niger Delta Woes Offset Rising Deepwater Supply.........................................................................15OECD................................................................................................................................................16
 
North America...............................................................................................................................16BP Alaskan Production Closure........................................................................................................18North Sea.......................................................................................................................................19
 
Former Soviet Union (FSU)..............................................................................................................19
 
Other Non-OPEC..............................................................................................................................20
 
Revisions to Other Non-OPEC Estimates.....................................................................................20
 
OECD STOCKS....................................................................................................................................22
 
Summary...........................................................................................................................................22
 
OECD Industry Stock Changes in June 2006...................................................................................23
 
OECD North America...................................................................................................................23
 
OECD Europe...............................................................................................................................23
 
OECD Pacific................................................................................................................................24
 
OECD Inventory Position at End-June and Revisions to Preliminary Data.....................................24
 
Recent Developments in ARA Independent Storage........................................................................25
 
Recent Developments in Singapore Stocks.......................................................................................25
 
PRICES.................................................................................................................................................27
 
Summary...........................................................................................................................................27
 
Oil Futures Prices..............................................................................................................................27Spot Crude Oil Prices........................................................................................................................28Delivered Crude Prices in May.....................................................................................................29Spot Product Prices...........................................................................................................................29End-User Product Prices in July....................................................................................................30
 
Freight...............................................................................................................................................31
 
REFINING............................................................................................................................................33
 
Summary...........................................................................................................................................33
 
Refining Margins..............................................................................................................................33
 
OECD North America...................................................................................................................33
 
OECD Europe...............................................................................................................................35
 
Asia...............................................................................................................................................37
 
Refinery Throughput.........................................................................................................................37
 
OECD North America...................................................................................................................38
 
OECD Europe...............................................................................................................................39
 
OECD Pacific................................................................................................................................39
 
Offline Refinery Capacity.................................................................................................................39
 
Non-OECD Throughputs..............................................................................................................40
 
TABLES................................................................................................................................................42
 
OIL MARKET REPORT CONTACTS
 
 
I
NTERNATIONAL
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NERGY
A
GENCY
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O
IL
M
ARKET
R
EPORT
M
ARKET
O
VERVIEW
 11 A
UGUST
2006 3
PUTTING IT INTO CONTEXT
 
Given the continued deterioration of supply-side fundamentals, it might appear surprising that pricesare not higher. Middle East turmoil, Iran’s nuclear activities, physical outages in Iraq and Nigeria, theshutdown of BP’s 400 kb/d Prudhoe Bay field and the pending North Atlantic hurricane season wouldappear to make market direction a one-way bet. Scratch below the surface though and these geopoliticaland supply issues are less defining for the oil market than they appear.For example, the rise in oil prices to nominal record highsin mid-July was a direct reflection of concerns that theIsraeli bombardment of Lebanon could ultimately threatenoil supplies from the Middle East. Once it was clear thatworld leaders were discussing political solutions and thatno major suppliers would be directly affected, thepremium dissipated. Similarly, Iran’s steadfast refusal tomeet UN Security Council demands on nuclear-relatedactivities ratchets up fears of a supply disruption as the31 August deadline approaches. Whether events willfinally evolve into a supply disruption remains to be seen,but for the moment this is a psychological rather thanphysical issue.But, there are several more tangible and immediate supply issues. In Nigeria, some 750 kb/d of capacity is currently offline. Shell has indicated that some of its facilities could return quickly butothers are likely to be out of action until the end of the year and few would be surprised if problemscontinued until the presidential elections in April 2007. There may, however, be some offset fromnew offshore developments due to come on stream at the end of the year.BP is shutting in its 400 kb/d Prudhoe Bay oil field in Alaska following renewed evidence of pipelinecorrosion. The company has indicated that it will carry out further inspections of the Western trunk lines, which may allow an early restart of 200 kb/d. Until more information is available we havedecided to take a conservative approach, removing the field from our forecasts for the rest of Augustand September, with a gradual recovery in output thereafter. However, the net loss is not quite aslarge as headlines of a 400 kb/d outage suggest: the
Oil Market Report (OMR)
had already beenworking on the basis of constrained output prior to the shutdown.While Prudhoe Bay represents a significant outage, there are potential offsets, from Saudi Arabia, the USSPR and above-trend refiner stocks. And, although its mitigation by OPEC would remove up to a fifth of effective OPEC spare capacity, the market impact may be limited as 400 kb/d had recently beenwithdrawn from the market by Saudi Arabia. Further, when the losses are amalgamated into our balances(and allowing for the average 640 kb/d
miscellaneous to balance
over the last two years), the call onOPEC through to the end of the year remains below OPEC’s average output for the past three months.In the current refinery-constrained environment, crude quality issues are more of a concern thanvolumetric outages. In the case of BP’s Prudhoe Bay, the crude lost is medium sour and possiblereplacements from Saudi Arabia are likely to be sourer. But this crude could be blended and will beprocessed by sophisticated West Coast refineries with more flexibility to remove sulphur than refinerswho typically rely on Nigerian light sweet crudes.For the time being, the market can cope with current outages, but in the light of the many possiblethreats to output, including the current hurricane season, there is little doubt that the upstream sparecapacity cushion remains thin.
OMR Monthly Balance for 2006
(million barrels per day)
Apr 06May 06Jun 06Jul 06Aug 06Sep 06Oct 06Nov 06Dec 06
OECD Demand47.34 47.63 48.86 49.69 49.70 49.53 49.82 50.50 51.78
World Demand82.32 82.69 84.10 84.60 84.66 84.81 85.18 85.95 87.33
Non-OPEC Supply50.93 50.48 50.22 51.00 51.14 50.86 51.74 52.25 52.41OPEC Crude29.63 29.62 29.98 29.76OPEC NGLs4.63 4.68 4.68 4.74 4.75 4.77 4.83 4.83 4.83Total OPEC34.26 34.30 34.66 34.50
World Supply85.19 84.79 84.88 85.50
Call on OPEC Crude + Stock Ch.26.76 27.53 29.20 28.86 28.77 29.18 28.61 28.87 30.0Adjusted Call *27.40 28.17 29.84 29.50 29.41 29.81 29.24 29.50 30.7
* Arithmetic 'Call on OPEC + Stock Ch.' adjusted to include the most recent 8-quarter average Miscellanous-to-balance (approximately 640 kb/d).
Adjustments to Prudhoe Bay CrudeSupply 2006/07
0100200300400AugSepOctNovDecJanFebMarkb/dJuly 2006 OMRAugust 2006 OMR
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