OPEC Revises Down 2H11 Demand Projection

OPEC Revises Down 2H11 Demand Projection

OPEC has revised down projections for global demand growth in 2011 by 180,000 b/d and shaved off its projection for demand growth next year. But the headline annual figures mask a major downgrade to OPEC’s view on demand for the second half of the year, with drops of 440,000 b/d and 330,000 b/d to third and fourth quarter projected demand, the latest OPEC Monthly Oil Market Report (MOMR) shows.

OPEC’s changed view appears structural, with similar radical downgrades of 520,000 b/d and 360,000 b/d to demand projections for the third and fourth quarter of next year. The second quarter of both 2011 and 2012, by contrast, has been slightly upgraded. Big downward revisions to the MOMR’s view on non-OPEC supply in the third quarter, and to a lesser extent the fourth quarter of 2011, has limited the impact of the demand projection slash on OPEC’s view on the call on OPEC crude. But a 220,000 b/d cut in its projection on the demand for OPEC crude for the fourth quarter this year should still come as a wake-up call, given that it comes as Libyan output is returning fast. And OPEC has downgraded its projections for the call on its crude in 2012 in the third and fourth quarter by 420,000 b/d and 250,000 b/d respectively. The MOMR now sees global appetite for its crude next year as absolutely flat.

OPEC has kept its view on global economic growth for 2011 steady at 3.6%, but there is a mounting sense – especially given the sizeable downgrades to oil demand – that this figure is conservative and could be set for a major downgrade. Developing nations, the main driver of growth “have been faced with the growing downside risk of decelerating growth in their major trading partners in the developed economies, as reflected in lower exports and declining foreign investments,” the MOMR noted. A Gulf OPEC source concedes: “The thing we don’t know about is the global economy.” And even if the global economy holds up, there is no certainty this will translate into firm oil demand. “Chinese oil demand is bound to uncertainty because of new government policiesaimed at reducing transport fuel use,” the MOMR said. “India’s increase in retail prices is expected to play a majorrole in dampening oil consumption in the coming year.”

Fresh soundings by MEES indicate OPEC’s key Gulf members are reacting to the new environment. MEES is revising its estimate of Saudi wellhead production in September from 9.7mn b/d to 9.45mn b/d (MEES, 10 October). But there is no doubt OPEC faces an uneasy couple of months ahead of its December meeting. There has been no output target in place, since talks collapsed at the organization’s June meeting (MEES, 13 June). Supply from Libya, and to a lesser extent Angola, is ramping up. A warm northern hemisphere December and/or any further slippage in demand could see prices come further under pressure. OPEC Basket prices are down some $10/B from August levels and, as the MOMR noted, the Nymex WTI front month price fell to a 10-month low in September. Given political tensions, finding a new quota arrangement will be challenging when ministers meet in December.

OPEC’s Summarized Oil Supply/Demand Balance For 2011 (Mn B/D)

	2010	1Q11	2Q11	3Q11	4Q11	2011
(a) World Oil Demand	86.93	87.47	86.24	88.36	89.16	87.81
Non-OPEC Supply	52.27	52.77	51.95	52.49	53.31	52.63
OPEC NGLs and Non-Conventionals	4.90	5.12	5.26	5.37	5.42	5.29
(b) Total Supply Excluding OPEC Crude	57.18	57.89	57.20	57.86	58.73	57.92
Difference (a-b)	29.76	29.58	29.03	30.50	30.44	29.89
OPEC Crude Oil Production	29.27	29.63	29.15	29.92
Balance	-0.49	0.05	0.12	-0.59

Totals may not add up due to independent rounding.

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

	2011	1Q12	2Q12	3Q12	4Q12	2012
(a) World Oil Demand	87.81	88.65	87.43	89.55	90.37	89.01
Non-OPEC Supply	52.63	53.49	53.28	53.34	53.73	53.46
OPEC NGLs and Non-Conventionals	5.29	5.50	5.61	5.71	5.79	5.65
(b) Total Supply Excluding OPEC Crude	57.92	58.99	58.89	59.05	59.51	59.11
Difference (a-b)	29.89	29.66	28.53	30.50	30.86	29.89

Totals may not add up due to independent rounding.

Copyright MEES 2011.