OPEC raises call on its crude for 2009, 2010

October 14 - OPEC has raised its estimates of demand for its own crude in both 2009 and 2010 on expectations that world oil demand will be stronger than predicted in light of an improving economic outlook.

The oil exporter club now expects demand for its crude to average 28.6 million b/d in 2009, 100,000 b/d more than its previous forecast a month ago, and 28.4 million b/d in 2010, 300,000 b/d more than previously forecast.

The group said in its latest monthly oil market report on October 13 that the higher projection for the current year nevertheless represented a "considerable" decline of 2.3 million b/d compared with 2008.

It also said that while growth in demand for OPEC crude next year was currently projected at minus 0.2 million b/d, with a decline of around 500,000 b/d in the first half, "the second half is expected to return to positive growth of about 100,000 b/d, providing a sign of recovery."

The cartel raised its projections of demand for its own crude in the third and fourth quarters of this year by 180,000 b/d and 80,000 b/d to 28.8 million b/d and 29.25 million b/d respectively.

The fourth-quarter figure is 350,000 b/d more than the 28.9 million b/d the group, using secondary source estimates, said it produced in September.

But OPEC sees the call on its own crude plunging by 1.29 million b/d between the last quarter of this year and the first quarter of next, when it is projected to average 27.96 million b/d.

Demand for OPEC crude is seen falling further in the second quarter of 2010, by 470,000 b/d to 27.49 million b/d, before climbing to 28.98 million b/d in the third quarter and 29.13 million b/d in the fourth.

"Until there is a clearer picture about the pace of the global recovery, the outlook for oil and other commodities will continue to be highly dependent on economic signals," OPEC said.

"Given weak oil market fundamentals as reflected in high global inventories and large OPEC spare capacity, there is a need for continued close monitoring of both economic conditions and developments in the oil market," it said.

Although OPEC production has steadily climbed to levels well above official target output, the group has been reluctant to take any action that might jeopardize a nascent recovery in the global economy.

At its September 9 meeting in Vienna, OPEC rolled over its 24.845 million b/d output target for the third time this year.

In its official communique, it noted the fragility of the recovery and said it did not want to rock the boat by cutting output, despite weak oil market fundamentals, including oversupply and high inventories in consumer countries.

Indeed, the communique did not even call for stricter adherence to output quotas under the 24.845 million b/d target.

Compliance with the 4.2 million b/d of output cuts agreed late last year has diminished steadily over the past few months alongside a broad firming of oil prices.

The group’s latest estimates, derived from secondary sources, showed that crude production from the 11 members bound by quotas rose by 73,000 b/d to 26.42 million b/d in September -- 1.58 million b/d more than the official target and suggesting a compliance rate of 62.5%.

Including Iraq, which does not participate in output pacts, September production averaged 28.9 million b/d, up 43,000 b/d from August.

OPEC, which uses secondary sources to monitor its own production, attributed the increased output largely to higher volumes from Angola and Nigeria, whose September volumes it estimated at 1.859 million b/d and 1.836 million b/d respectively.

The increased demand forecasts for OPEC crude in 2009 and 2010 stemmed from a higher estimate of total world oil consumption in both years.

OPEC now expects oil demand to average 84.24 million b/d this year, 180,000 b/d more than previously predicted, largely due to the apparent recovery in the global economy.

“The world economy now appears to be entering into a new phase, moving from a period of containing the crisis to one of economic recovery,” OPEC said.

“With US consumption rebounding from a steep historical decline, the world oil demand forecast for this year is not as bad as previously expected,” it said, adding that "industrial fuel consumption is increasing in the OECD, China and India."

OPEC raised its estimate of demand next year to 84.93 million b/d, 380,000 b/d more than previously forecast and implying year-on-year growth of 700,000 b/d, up from a previous figure of 500,000 b/d. The relatively small increase in demand stems from the fact that the general economic recovery is expected to be "slow and weak," OPEC said.

Most of the expected increase in world oil demand in 2010 comes from countries outside the OECD, in particular China, the Middle East, India and Latin America.

On the supply side, OPEC made only minor revisions to its estimates of output by non-OPEC producers in 2009 and 2010.

In 2009, non-OPEC supply is seen rising to 50.86 million b/d, 50,000 b/d more than previously expected and an increase of 410,000 b/d from 2008. Non-OPEC supply next year is expected to rise by 350,000 b/d to an average level of 51.21 million b/d, OPEC said.
 

--Margaret McQuaile, Richard Swann