The non-OPEC world is struggling to grow production. The growth was 2% per annum between 1998-2003, 1% from 2003-2008 and is forecast 0.5% from 2008-2013 and we believe that has a good chance of not being realized. 2009 turned out a better year than previous years as a number of projects (such as BP's Thunderhorse) that had been long in the making eventually came good. Even so, the outturn at 0.8m b/day was only around two-thirds of the original IEA forecast for non-OPEC supply growth in 2009 of 1.1m b/day (September 2008 estimate).

For 2010, the IEA have in recent months forecast growth in production of between 0.7m and 0.9m b/day. Their current forecast is at the top end of this range, despite the potential of a slowdown in Gulf of Mexico drilling in the aftermath of the April rig explosion.

Looking further ahead we must consider the impact of potential increases in supply from Iraq, an OPEC member that has no formal quota. The question of how big an increase is likely, in what timescale, and the reaction of other OPEC members are all important issues. Our conclusion is that while an increase in Iraqi production may be possible (say, 2-3m barrels over the next 5 years) if it occurs it will be surprisingly easily absorbed by a combination of OPEC adjustment, if necessary, and peaking non-OPEC supply and continuing growth in demand from developing countries of 10 -15m bbls/day over the next 10 years. Iraqi production is currently running at 2.4 m bbls/day, down from a high of 3.6m bbls/day in mid 2000. We noted with interest some comments from Core Laboratories at a Simmons International conference we attended in September that Iraqi production would not exceed 3.6m b/d (the previous peak) within the next 5 years because the fields had been so badly damaged under Saddam Hussein.

David Fuller's view Tim Guinness shows a chart of the United States Oil Fund (USO), an ETF, compared to the performance of WTI crude oil. I have produced something similar in our Library with an overlay chart of crude. It shows us why Fullermoney does not like commodity futures ETFs. They often increase contangos (the premium of futures prices over spot prices), and these costs eat up most of the performance.

However, when we next have cause to be bearish of crude oil, the USO ETF will be a great short, capturing the decline and the contango.

Meanwhile, Brent crude is leading WTI crude higher and both have pushed up out of their very lengthy base formation extensions. They would have to fall back beneath $80 to disrupt significantly current scope for sideways to higher ranging.

I note that Tim Guinness sold his long position in Royal Dutch Shell in November because it had "become the most expensive integrated held in the fund." Perhaps that accounts for the share's temporary dip in November. I am content to hold Royal Dutch Shell's B-Shares (RDSB LN) in my personal long-term investment portfolio because the historic PER is 13 and the forward PER is only 10, while the B-shares currently yield just over 5%, according to Bloomberg.

(See also an oil report and Eoin's comments below.)