As 2009 draws to a close and the Organization of the Petroleum Exporting Countries (OPEC) prepares to meet again at the end of the month, it faces a global oil market that has firmed up in response to production cuts that began to take effect in January 2009.

Although OPEC compliance with the cuts has weakened and global oil inventories remain very high by historical standards, WTI oil prices averaged $78 per barrel in November, continuing their generally upward trend since February. Expectations of a continued global economic turnaround have buttressed oil markets, and this Outlook assumes world oil-consumption-weighted real GDP grows by 2.6 percent in 2010, following a decline of 0.7 percent in 2009. EIA's expectation is that OPEC crude oil output in 2010 will hold at roughly fourth-quarter 2009 levels of under 30 million barrels per day.

Global Petroleum Consumption
EIA forecasts that world oil consumption will grow in 2010 by 1.1 million barrels per day (bbl/d) to 85.2 million bbl/d, down slightly from last month's Outlook. Countries outside of the Organization for Economic Cooperation and Development (OECD) are likely to account for almost all of this growth. Projected OECD oil consumption grows by only 0.1 million bbl/d in 2010, despite a projected 0.27 million bbl/d increase in the United States after a very weak 2009.

Non-OPEC Supply
EIA expects non-OPEC oil production to average 50.3 million bbl/d in 2009, about 0.6 million bbl/d higher than year-earlier levels. Non-OPEC oil production increases have been largely the result of higher production from the United States, Brazil, and the Former Soviet Union (FSU). Oil production in Colombia has also been surprisingly strong. According to preliminary data, the country's crude oil output exceeded 0.7 million bbl/d in October for the first time since 2000. Projected non-OPEC supply growth slows to 0.2 million bbl/d in 2010, largely the result of lower growth in the United States and FSU .

OPEC Supply
OPEC crude oil production is expected to average 29.1 million bbl/d in 2009, down more than 2 million bbl/d from year-earlier levels. Projected OPEC crude oil production increases to an average of 29.6 million bbl/d in 2010, a response to an anticipated rebound in global oil demand (World Crude Oil and Liquid Fuels Production Growth Chart). EIA expects OPEC non-crude petroleum liquids, which are not subject to OPEC production targets, to grow by 0.6 million bbl/d in 2010. OPEC is scheduled to meet in Angola on December 22 to reassess the market situation. Through the forecast period, OPEC surplus crude oil production capacity should remain in excess of 4 million bbl/d, versus an average of 2.8 million bbl/d seen over the 1998-2008 period.

OECD Petroleum Inventories
OECD commercial oil inventories stood at 2.77 billion barrels at the end of the third quarter of 2009, 115 million barrels more than the 5-year average. Inventories are projected to be at 58 days of forward cover at the end of 2009, 5 days above the 5-year average for that time of year. EIA expects OECD oil inventories to remain above average historical levels throughout the forecast period.

Crude Oil Prices
WTI crude oil spot prices averaged $78 per barrel in November, more than $2 per barrel above than the prior month's average. This increase reflected improving expectations of a global economic recovery and higher oil consumption offsetting concerns about the high current level of oil inventories. EIA forecasts that WTI spot prices will weaken over the next few months, falling to about $75 per barrel in February, and then rising to about $82 per barrel by the end of next year.

Crude oil prices were less volatile in November than during October. During November, the WTI spot price traded within a $5-per-barrel range, between roughly $75 and $80 per barrel. This contrasts with October, when the WTI spot price averaged just under $76 per barrel and traded in an $11-per-barrel range, between roughly $70 and $81 perbarrel.

In the crude oil futures options market, WTI implied volatility trended lower over the second half of October and most of November 2009, following the downtrend in spot price volatility. Implied volatility from the February 2010 futures options contracts averaged 40 percent for the 5 days ending December 3, with the lower and upper limits of the 95-percent confidence interval for the February 2010 futures price at about $60 per barrel and $112 per barrel respectively. The February 2010 WTI futures contract averaged $78.43 per barrel for the 5 days ending December 3.

Last year at this time, market participants were pricing WTI crude oil in February 2009 at $50 per barrel, about $28 below the level currently trading for February 2010 delivery. The implied volatility last year for the February 2009 contract was double the current level, at 82 percent per year, with lower and upper limits of $29 and $84 per barrel, respectively, for the 95-percent confidence interval. The higher implied volatility reflected continued market uncertainty following a price collapse from all-time highs for the WTI futures of more than $145 per barrel in July 2008.

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