Global Oil Supply Now Contracting?  

Stuart at Early Warning has a post on global oil production numbers and their implications for global economic growth - Global Oil Supply Now Contracting?.

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. ...

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.