Update 8/13/10: global oil supply increased in July. Original text follows:
It's too soon to remove the question mark from the end of the post title, but not too soon to be talking about the subject.
For a number of months now, I've been tracking the fairly rapid recovery in global oil production, after the end of the great recession. I even pointed out that there was enough spare capacity in OPEC that it could potentially exceed the previous peak of monthly oil production back in July 2008. I was careful to add this caveat, however, complete with bold font on the "if":
Therefore, if the global economic recovery continues, and in particular if OPEC is willing to restore their production cuts at prices that don't derail that recovery, then it appears likely that the July 2008 liquid fuel production level will be exceeded.The data for the last few months now have me wondering whether the global economic recovery is not in fact continuing. Here's the data from 2002 on:
The purple, plum, and green curves have the raw data (from the three agencies that track global production) with thin lines and squares, and then a centered moving average as the thicker smooth curves. This shows the major features of global production since 2002 - the rapid rise following the 2000-2001 recession, and then the "bumpy plateau" after late 2004, with a bump up in late 2007 and early 2008, followed by the contraction associated with the great recession in late 2008 and early 2009, then the subsequent recovery.
You can also see inflation adjusted monthly oil prices on the right hand scale (blue curve). This shows the oil price shock of 2005-2008, followed by the recession-induced sharp fall below $40, and then the recovery as OPEC cut production in late 2008. Prices more or less increased after that until they peaked in April of this year and then fell in May and June.
Focussing in just on the period since the beginning of 2008, here are the three main sources of global production data, together with their average (the heavy black curve):
As of today, we have data for June from two agencies (OPEC and the IEA), and data through April for the third (the EIA). OPEC and the IEA agree that production has been declining at least modestly since February (see blue circle), while the EIA currently shows the peak month in 2010 as March. Overall, the average is down about 600kbd, or around 0.7% from the February 2010 peak.
The all-time peak in global production (so far) is within the green circle. The fall due to the great recession corresponded to a 5% reduction in global production by the trough in May 2009. This is context for the current 0.7% contraction, which is much smaller at this time.
In the short term, global oil production is a sensitive indicator of the state of the global economy, and I'm not aware of any other publicly available proxies for the overall state of the world's economy that are as timely.
In this case, given that prices are falling rather than rising, and that OPEC undoubtedly has some spare capacity, the question becomes one not about whether supply is struggling to rise, but rather about whether demand is faltering or even declining.
Whether this presages a renewed contraction in the global economy, a stagnation, or just a transient hiccup in the ongoing recovery, I'm not certain of yet. But certainly each passing month of lower oil production will add to the concern.