This document summarizes the Oil & Gas Journal's midyear forecast for 2011. It reports that global oil demand is expected to increase slightly, with non-OECD demand growing 3.5% while OECD demand declines slightly. World oil supply is projected to increase 1.1% from non-OPEC sources and 10.2% from OPEC natural gas liquids. The document also discusses OPEC production levels, the IEA's decision to release strategic oil reserves, factors that could impact oil prices in the second half of the year, and projections for US energy demand, production and imports.

1. Oil & Gas Journal Midyear Forecast - 2011Bob Tippee, EditorOil & Gas JournalEnergy AdvocatesJune 23, 2011

2. World oil demandOECD down slightly at 45.9 MM b/d; non-OECD up 3.5% at 43.4 MM b/d

3. World oil supplyNon-OPEC: 53.3 MM b/d (+1.1%)OPEC NGL: 5.9 MMb/d (+10.2%)Stock change: -300 M b/d OPEC crude: 29.8 MM b/d (+1%)

4. Second-half problem (MMb/d)

5. The OPEC storyWorld needs 30 MM b/d of OPEC crude in 2HOPEC production:29.9 MM b/d average 1Q29.2 MM b/d in MayOPEC June 8 meetingSplit interests: haves vs. have-notsNo quota adjustmentUnilateral production hikes by S. Arabia, others

6. IEA today: tapping strategic stocksRelease 60 MM bbl in next month (2 MM b/d)North America 50%, Europe 30%, Asia 20%“…contribute to well-supplied markets and to ensuring a soft landing for the world economy” (Executive Director Nobuo Tanaka)Total storage: 1.6 billion bblReassess in 30 daysIn market by July; Saudi oil can take 3 months

7. Effect of IEA action2 MM b/d jolt of supplyBrent and WTI quickly dropped by 7%Muted (so far) condemnation from OPECPolicy shift: market lever vs. emergency supply

8. Price wild cardsSaudi response to IEA stock drawEconomic response – especially crisis economies of EuropeDollar vs. EuroDemand responseTrader worries about shrunken cushions (inventories and idle production capacity)

9. Spare production capacity (EIA)

10. OECD stocks

11. US oil priceWTI discount to Brent was almost $20/bbl yesterday (June 22).

12. US energy demandAssumes real GDP growth of 2%Federal Reserve yesterday lowered GDP growth projection for 2011 to 2.7-2.9% from 3.1-3.3% in AprilFed raised unemployment rate projection to 8.6-8.9% from 8.4-8.7% in April

13. US oil demand

14. US demand for key products

15. US gas priceWTI:HH price ratio 22:1 yesterday (June 22) vs. BTU ratio of 6:1

16. US demand for gas

17. US gas production

18. US gas importsCanada -9%Mexico -83.%LNG -7%

19. Treasury: Percentage depletion=subsidy“The President agreed at the G-20 Summit in Pittsburgh to phase out subsidies for fossil fuels so that the United States can transition to a 21st-century energy economy. Percentage depletion effectively provides a lower rate of tax with respect to a favored source of income. “

20. The Close the Big Oil Tax Loophole ActForeign tax credit for dual-capacity taxpayersDomestic production deduction (Sect. 199)Current-year expensing of intangible drilling costs (IDCs)Percentage depletionDeduction for qualified tertiary injectants