Credit Suisse on Global Oil Production
Why US Shale Oil Won't Derail Global Markets (Yet)
E. Westlake, 13 March 2013
Bottom Line: US production is growing fast, raising concerns that oil supply will overwhelm demand growth and oil markets
will move into surplus capacity. However, over recent history, non-OPEC outside the US has struggled to grow. In this note,
we look at global oil production trends. We conclude : (1) shale provides a potential safety valve for oil markets adding a
supply response during high oil prices but shale may not be sufficient to derail oil markets (yet). (2) Global decline is
significant at around 4.5mbd pa. (3) We see continued global oil demand growth, notably from emerging markets. Bottom
line, capacity with a following wind, could grow 1.4mbd pa in our central case through 2019, demand by 1.1mbd pa. While
the flat Brent price is above marginal costs, flow issues affecting supply-demand may keep prices elevated for some years.
Bullish on US Oil Production, Concerned About Global Decline: We believe US total liquids production (Oil, NGL, US GoM
and biofuels) can rise towards 15MBD (from 10MBD today). However, we see a large offset from global decline. US
production growth needs to be put in the context of 4.5MBD annual decline on production outside the US. Our long range
supply model points to 1.4MBD pa productive capacity growth from 2012-2019. There is no explosion of spare capacity. We
note our long range forecasts include 3.2MBD of capacity from a return into service of Syria, Sudan, Nigeria plus
international shale (Argentina, Canada, Colombia, Russia).
Demand Accelerating: Our supply model suggests 1.4mbd pa growth with some downside tail risk. That may not matter
while economic growth is meager. However, if economic activity picks up, oil markets could be stressed once more.
What Could Eventually Derail Oil Markets: Although we conclude near term US shale growth is required to balance
emerging market demand / offset decline through 2019, policy to promote natural gas usage and energy efficiency can
make a difference in the longer term. Shale gas is likely to be a much larger influence on primary energy balances than
shale oil.
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