OPEC Projects Tough 2013

World oil demand growth slowing next year and strong non-OPEC supply growth mean demand for OPEC crude will actually retract by some 300,000 b/d, predicts the July edition of OPEC�s Monthly Oil Market Report (MOMR), the first to provide projections for 2013. Rafiq Latta reports.

A poor OECD economic performance is beginning to weigh on non-OECD economies, the driver behind oil demand growth in recent years, argued the MOMR . �The world economy is continuing its subdued recovery and prospects remain fragile,� it said. �In the OECD, the real economy still lacks momentum, while growth levels in the emerging economies remain largely dependent on exports,� it added. OPEC projects oil demand growth for 2012 will be unchanged at 900,000 b/d, with 2013 demand growth pegged at 800,000 b/d.

The 2013 challenges OPEC faces are both structural and likely to persist beyond next year. Even should the economy rebound, China, the main source of new demand growth of the last decade, is likely to continue energy efficiency efforts. These are already starting to reap benefits � 2011 Chinese oil demand growth stood at over 5%, while this year it is projected at 4.25%. And for 2013, Chinese demand will break through the 10mn b/d mark at 10.18mn b/d, but growth will slow to 3.8%, projects the MOMR .

On the supply side, the US shale revolution will continue to drive strong non-OPEC supply growth, despite falls in Norwegian, Mexican and UK production. North American supply growth is projected to slow from 860,000 b/d this year to under 500,000 b/d next, but it is nevertheless the main factor pushing up non-OPEC supply growth from 700,000 b/d this year, to 900,000 b/d next year, the report said. And with other sources of supply from Brazil, Iraq and East Africa due to come on stream post-2013, on the face of it OPEC would appear to be set for a period of vigilance. The experience of the last few years might argue that any price fall will only be temporary. But there is clear potential for a sustained era of lower prices while most OPEC members have raised revenue expectations to target $100/B oil.

In the short term, the MOMR lays out a revised and more volatile trajectory for demand this year, implying greater need for output discipline. The report projects a 1.92mn b/d rise in the appetite for OPEC crude going into the third quarter. This �call on OPEC crude� is then projected to drop by 450,000 b/d going into the fourth quarter. This compares to a projected 1.67mn b/d rise into 3Q and a 370,000 b/d drop into 4Q, in last month�s issue of the MOMR (MEES, 18 June). High stock levels further exacerbate the potential for a severe downward pressure on prices. US commercial oil stocks rose to their highest level since August 2011.

The report noted OPEC Basket prices have continued to �decline for the third consecutive month to settle below $100/B for the first time in 18 months at $93.98/B. �This 13% drop was �the highest month-to-month drop since the 22% fall set back in December 2008,� the MOMR said. Basket prices have rebounded since their 22 June $88.74/B low. Certainly, should they remain range-bound, a $100/B average for 2012 appears eminently achievable, representing healthy annual revenues for the majority of OPEC members. The exception to this is Iran, whose output fell over 200,000 b/d to reach 2.963mn b/d in June, according to OPEC�s tally of secondary sources. This compares to a secondary source average 2011 Iran output estimate of 3.62mn b/d. New export data is also prompting MEES to revise down its Iran June production estimate by 50,000 b/d to 3.12mn b/d (MEES, 9 July). MEES estimates Iran 2011 output as averaging 3.59mn b/d.

OPEC�s Summarized Oil Supply/Demand Balance For 2012 (Mn B/D)

Totals may not add up due to independent rounding.

OPEC�s Summarized Oil Supply/Demand Balance For 2013 (Mn B/D)

Totals may not add up due to independent rounding.

© Copyright MEES 2012.