OPEC won’t dare to disturb the universe

To borrow from T. S. Eliot’s The Love Song of J. Alfred Prufrock, why would OPEC bother to ”dare disturb the universe”?

The monthly Platts survey pegged total output from OPEC’s 12 members at 29.11 million b/d in August. OPEC’s own estimate, derived from secondary sources, is 29.147 million b/d. Both the Platts and OPEC estimates represent drops from July, when the Platts number was 29.22 million b/d and that of OPEC 29.19 million b/d.

But OPEC sees demand for its crude at just 28.65 million b/d this year and 28.84 million b/d in 2011, having revised downward its previous estimates by 90,000 b/d and 80,000 b/d respectively.

It warns in its latest monthly oil market report, released on September 9, that global demand for oil may weaken over the remainder of this year as government stimulus packages are wound down, saying the slowing economic recovery is already hitting growth in oil consumption.

The report says pressure from brimming product stockpiles, now considerably above historical levels, is likely to keep markets bearish over the next few months despite the approach of the high-demand season.

Pointing out the difficulties of forecasting demand, OPEC has kept its forecast of year-on-year growth in world oil demand around 1 million b/d for both this year and next.

On an annual basis, it has slightly raised its previous forecasts of world oil demand by 10,000 b/d to 85.51 million b/d in 2010 and 85.56 million b/d in 2011.

But it has also revised upward its month-ago forecasts of non-OPEC oil supply growth by 140,000 b/d in 2010 and by 150,000 b/d in 2011. It now sees non-OPEC oil supply averaging 52.06 million b/d in 2010 and 52.42 million b/d in 2011.

OPEC notes that US oil demand growth has been stronger than expected but says this has been more than offset by the ongoing contraction in European consumption. Similarly, growth in emerging economy oil demand has provided some compensation for the lower growth in OECD demand, it adds, though it voices some concern that efforts by the Chinese government to prevent the economy from overheating could dampen oil demand growth in the next few months.

But it said pressure from brimming product stockpiles, now considerably above historical levels, was likely to keep markets bearish over the next few months, especially if no further government support is on the horizon as the current round of government stimuli winds down.

In fact, the OECD says in a report coinciding with OPEC’s latest monthly forecasts that the world economic recovery could be slowing faster than previously anticipated and that additional stimulus may be needed.

“If the ongoing slowdown is temporary, the appropriate policy response would be to postpone the withdrawal of monetary support for a few months,” the OECD says. “On the other hand, if the slowdown reflects longer-lasting forces bearing down on activity, additional monetary stimulus might be warranted in the form of quantitative easing and commitment to close-to-zero policy interest rates for a long period.”

Meanwhile, the pressure on OPEC to do anything about production is negligible. The gap between actual production and official levels has been in the region of 2 million b/d for quite some time, yet crude prices have remained fairly stable in the $70-$80/barrel range that appears to suit everyone.

This article published at:  http://peakoil.com/production/opec-wont-dare-to-disturb-the-universe/