Opec, source of more than a third of the world's oil, cut its forecast for global oil demand growth this year as a worsening economic outlook curbs consumption in developed economies. The revision from the Organisation of the Petroleum Exporting Countries in a report on Tuesday follows reductions by other forecasters, such as investment bank Barclays Capital, as slowing growth hits consumers and businesses.
"Dark clouds over the economy are already impacting the market's direction," Opec said in its monthly report. "The potential for a consequent deterioration in market stability requires higher vigilance and close monitoring of developments over the coming months." World oil demand will increase by 1.21 million barrels per day (bpd) in 2011, Opec said, 150,000 bpd less than expected last month. Growth next year was lowered only marginally, by 20,000 bpd to 1.30 million bpd.
Economic gloom has been weighing on oil prices and, officials say, causing some concern in Opec. Brent crude slumped to the lowest in six months on Tuesday, dipping below $100, before rebounding towards $105 by 1247 GMT. "Economic worries along with high oil prices have affected OECD oil demand," Opec said. A revised report received minutes before its embargoed release time of 1130 GMT removed the words "high oil prices" from the sentence. "Oil demand in the OECD is expected to continue its contraction after a temporary rebound last year."
Others in the oil industry, such as BP Plc and Royal Dutch Shell, have said high crude prices dented demand in the second quarter. BarCap cut its demand growth forecasts last week. The issue of "high prices" is a sensitive one for the 12-member Opec, which has no collective price target. The weakening demand picture for 2011 could bolster the view of Iran and other price hawks within Opec who at a meeting in June blocked a Saudi Arabia-led proposal to increase output.
After the failed meeting, Saudi Arabia and other members including Kuwait and the United Arab Emirates unilaterally increased their production, helping Opec output to rise to the highest in months. According to secondary sources cited by the Opec report, Opec supply rose by 405,000 bpd in July to 30.07 million bpd. That is the same total as a Reuters estimate published on July 28. There is no sign, yet, that Saudi Arabia is rethinking its supply policy. The kingdom has left supply to Asian and European customers unchanged in September despite the fall in prices, industry sources said on Tuesday.
An Opec delegate told Reuters earlier this week that while the economic picture and slide in oil prices was a worry, there was no plan for the group to hold an emergency meeting. Despite the reduced demand forecast and higher production, Opec's economists still forecast a gap between supply and demand in the second half of the year.
Tuesday's report implied the supply gap had narrowed to 810,000 bpd in the second half from 1.25 million bpd in July. It expects demand for Opec crude to rise next year to 30.2 million bpd - 100,000 bpd less than expected last month - from 30 million bpd in 2011. Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, said it was significant Opec was still pumping less than its own economists forecast the world will need, and demand outside the OECD remained largely on track.
"Opec has reduced its demand forecasts but the estimate of the 'call' on its crude oil in the third quarter still remains above the cartel's current production," he said. "If economic forecasts have been downgraded in the United States and Euope, hitherto there has been no notable downgrade to the outlook in emerging markets where oil demand growth ultimately takes place." The spotlight will now fall on the other two closely watched oil forecasts from government agencies due for release soon.
Later on Tuesday, the US government's Energy Information Administration releases its August report. At present, it sees higher 2011 demand growth than Opec of 1.43 million bpd. The International Energy Agency, adviser 28 industrialised countries, issues its report on Wednesday. The IEA currently predicts 2011 oil demand growth of 1.2 million bpd.
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