World oil demand will grow faster than new supplies outside Opec's control in 2010, but stocks are likely to rise as the group is currently pumping more crude than the market needs with prices above $80 a barrel. According to a Reuters poll of ten top oil-tracking analysts and organisations, current Opec production levels are likely to see the oil market in a small surplus of 150,000 bpd this year.
In the last Reuters supply and demand poll in November, Opec's production at that time implied a small stock draw in 2010. The producer group's output, including Iraq, was assessed in February at 29.35 million bpd, according to secondary sources in Opec's own monthly market report released last week.
The poll shows demand for Opec's crude averaging just 29.2 million bpd this year. The group decided to leave production quotas unchanged at its latest meeting on Wednesday and made little noise about member compliance, which has slipped to just above 50 percent of the agreed cuts of 4.2 million bpd. "We've got to watch Opec and see what they do," said Sarah Emerson, director of Energy Security Analysis Inc in Boston.
"Unless demand starts to recover then Opec could be producing too much. I think oil prices are really high for the fundamentals." Oil demand is predicted to rise by 1.5 million barrels per day (bpd) next year to 86.0 million bpd. At the same time, the rise in production from outside the Organisation of the Petroleum Exporting Countries and output of natural gas liquids (NGLs) from Opec members is seen growing by 900,000 bpd in total.
Non-Opec output is seen averaging 51.5 million bpd in 2010, up from 51.2 million bpd last year, while Opec output of NGLs - which are not subject to the group's production quotas - is expected to rise to 5.3 million bpd, up 20 percent since 2008. "We believe 1.5 million bpd growth is realistic, assuming the broader economic recovery remains on track", said Francis Osborne, principal analyst at Wood Mackenzie oil consultants in London.
"Most of the growth will be outside the OECD, with only slight growth in the United States in the industrial sector. Around one third of the growth will come from China." At the end of January, the International Energy Agency (IEA) assessed oil stocks in the Organisation for Economic Co-operation and Development (OECD) at 59.2 days of forward cover, 58 million barrels above the five-year average. The implied stockbuild in the poll would equal another 55 million barrels.
DIVERGENCE Demand expectations have been trending higher, with the average forecast for world demand 200,000 bpd higher than the last survey in November. But doubts surrounding the strength of the economic recovery and how oil demand will respond following the impact of record prices, a global recession and increased environmental initiatives have seen views diverge.
The two highest forecasts for oil demand come from Goldman Sachs and the IEA, who forecast demand at 86.8 million bpd and 86.6 million bpd respectively. Opec sees demand roughly 1.5 million bpd below these levels. Barclays Capital and Goldman, two of the biggest investment banks in the commodities business, both see non-Opec supply actually falling in 2010 due to underinvestment and the decline of mature fields.
Goldman is the only forecaster to predict Opec will need to pump more than 30 million bpd to keep stock levels unchanged. "Global economic activity continues to improve and the economic cycle in the United States is turning up, with job destruction poised to give way at last to job creation," analysts at Goldman said in their latest report. Price expectations have also been rising. The latest Reuters oil price poll in late February showed an expected average price in 2010 of $77.70, up by more than $2 a barrel since November.
DEMAND GROWTH RETURNS The expected demand increase in 2010 will be the first year to show average growth since 2007, before record prices and the economic crisis slashed consumption. Average global oil demand fell by almost 2 percent between 2007 and 2009, but the rebound in growth should see consumption back to the average level of 2008, according to the poll.
Demand was at an all-time high in early 2008, sending prices spiralling towards $150 a barrel before the economic crisis saw prices plummet to around $40 a barrel by the year end. Some think the doubling in prices since then is overdone. "At some point we think the market will need to consider whether the underlying fundamentals truly support this market, including whether an Opec status quo that may permit a further gradual uptrend in output is really consistent with rising prices," said Tim Evans of Citi Futures Perspective in New York.
Comments
Comments are closed.