Gasoline prices remain high, and Reuters recently noted that there are enough countries with civil unrest, technical problems, and bad weather with around a million barrels a day of possible supply that are not getting to the market. Yet with Saudi Arabia continuing to reassure that it is willing to pump more oil if needed, there appears to be, superficially, little cause for supply concerns this year. By the same token, concerns over supply in the longer term also seem to be increasingly discounted. For example, Citigroup has just released a new report on Energy 2020: North America as the new Middle East. The report suggests that there is really no concern with future supplies of oil and gas, perhaps most clearly shown with this plot:
I would argue that the numbers for Saudi Arabia and Russia are difficult to realistically justify. For the Kingdom, which is reported to be producing 9.9 mbd, to increase production by another 2 mbd is optimistic, given the aging of their primary fields and the decline in remaining volumes that I will discuss in future posts in the current series on that country. The projection of an increase in Russian production is a similar concern. With the decline in production from Western Siberia, there is not enough new production coming from Timan-Pechora and Eastern Siberia to sustain existing levels, let alone see an increase in production – a point that has been made by Russian officials in the past. However, the real concern lies with the relatively unrealistic image that is being projected for US production over the next eight years.