August 15, 2007 -
OPEC August 14 raised its forecasts of world oil demand and
demand for its own crude this year and next.
But it warned that the demand outlook was being clouded
by a number of "emerging uncertainties," including the
extent of the fallout from the housing loans crisis in the
US which has already caused volatile swings in global equity
markets.
The oil producer group is scheduled to meet on September
11 in Vienna to review the current agreement, which limits
production by the 10 members bound by output agreements-Iraq
and new member Angola currently are free to produce as much
as they can-to 25.8 million b/d, although actual output is
estimated to be much higher.
Top OPEC officials have been reluctant to predict the
outcome of the September meeting, reiterating the view that
there is currently no shortage of crude on world markets.
The International Energy Agency, however, wants OPEC to
consider boosting crude production sooner rather than later
to ensure winter demand will be met.
In its latest report, OPEC has raised its forecasts of
demand for crude produced by its own member countries to 31
million b/d this year, 220,000 b/d higher than the 30.78
million b/d previously projected.
But while it has revised the 2008 call on its crude
upward by 50,000 b/d to 30.76 million b/d, it now sees
demand for OPEC oil falling by 240,000 b/d year-on-year.
Demand for OPEC crude is seen at 31.14 million b/d in the
third quarter, 350,000 b/d higher than last month's
projection of 30.79 million b/d, and at 31.32 million b/d in
the fourth quarter, 190,000 b/d higher than the previously
projected 31.13 million b/d.
These projections are significantly higher than the 30.38
million b/d OPEC estimates its members to have produced in
July.
Although OPEC revised its forecasts of world oil demand
upward by 130,000 b/d to 85.72 million b/d in 2007 and by
120,000 b/d to 87.06 million b/d in 2008, it lowered its
forecasts of non-OPEC supply.
The group's Vienna secretariat now sees non-OPEC supply
at 50.33 million b/d in 2007, 90,000 b/d lower than the
previous estimate in July, and at 51.4 million b/d in 2008,
20,000 b/d lower than the previous forecast.
OPEC production of natural gas liquids and what it calls
"non-conventionals" is forecast at 4.39 million b/d in 2007,
unchanged from last month's projections, but has been
revised upward by 110,000 b/d to 4.91 million b/d in 2008.
OPEC warns of
"uncertainties"
Despite the upward revisions, OPEC warned that "emerging
uncertainties" about future oil inventory levels and the US
and world economies were combining to "cloud" the outlook
for oil demand.
The past four weeks had seen US benchmark crude WTI
exhibit "extreme volatility," surging to a new record of
more than $78/barrel and then plummeting by $7, OPEC noted.
This plunge reflected concerns about a possible slowdown
in the US economy in the second half of this year and was
exacerbated by "the increasing fallout from the troubled US
subprime housing sector which resulted in a correction in
the financial markets in the US, Europe and Asia," OPEC
said.
The downside risks to the US outlook had increased during
the past month, casting doubts over expectations of a
gradual US economic recovery, OPEC said.
"The persistent recession in the housing sector-in
particular the subprime mortgage market-exerted increasing
downward pressure on credit and equity markets, with the
fallout affecting not only the US but spreading to global
equity, bond and commodity markets, and precipitating fears
of a global economic slowdown," the report said.
Another development with possible implications for demand
was the recent shift of US benchmark crude WTI into
backwardation for the first time since October 2005.
"With prompt prices higher than those further out, there
is a reduced incentive to hold inventories and therefore the
potential for a decline in crude stocks in the weeks ahead,"
OPEC said, although it added that this structural shift
could turn out to be a temporary phenomenon.
Crude stocks appear
sufficient to meet demand
"Either way," OPEC said, "with OECD total crude stocks at
close to decade-highs and US inventories at particularly
comfortable levels, crude oil stocks appear sufficient to
meet the forecast demand levels and still remain above the
middle of the five-year range."
In July, OPEC noted, total US commercial stocks had
climbed by 6.8 million barrels to 1,034 million barrels, the
highest level since January, to remain 20 million barrels
above the five-year average.
Having previously attributed much of the recent surge in
prices that took US benchmark crude WTI to an all-time high
of more than $78/barrel to refining constraints, OPEC said
in its latest report that as the end of the driving season
approached, "product developments" no longer appeared to be
driving the market.
"Counter-seasonal gasoline stock movements in the USA, as
a result of recovering domestic refinery runs, and higher
imports undermined the bullish momentum in product markets
in July and exerted downward pressure on the crack spread of
light distillate products. These developments, together with
higher crude prices, resulted in lower refinery margins
across the globe.
With the approaching end of the driving season, the
recent bearish momentum may increase, exerting pressure on
product and crude prices over the coming weeks," the report
said.
"There is no doubt that the above uncertainties have
clouded the outlook for oil demand. The more bearish
economic trend which has materialized in recent weeks could
negatively impact demand growth in the second half of the
year," OPEC said.
Declining refinery margins combined with the end of the
US driving season and the start of refinery maintenance in
the Atlantic Basin in September "may reduce the incentive to
keep throughputs high, weakening demand for crude oil,"
while a continuation of WTI market backwardation could
encourage stock withdrawals, OPEC said.
The report also noted that while growth prospects within
OPEC countries remained "robust," the past five years had
seen the dollar fall by about 20% against a broad index of
currencies and by about 60% against the euro. This had cut
the purchasing power of member countries.
