"Considerable risks remain" on the oil market, Opec warned on Wednesday as it again reduced its forecast for world crude demand. "Considerable risks remain as oil market fundamentals are far from balanced due to the persistent contraction in demand and growing supply overhang," the Organisation of Petroleum Exporting Countries wrote in its latest monthly report.
"Whether this sentiment will lead to a sustainable recovery, despite the prevailing weakness in market fundamentals, remains to be seen." Opec cut its forecast for global oil demand this year. "Continuous downward revisions to world economy growth have been exhausting world oil demand. The new downward revision in world GDP (gross domestic product) implied a further downward revision in world oil demand growth of 0.2 million barrels per day (bpd) in 2009, which is mostly related to the Americas," it said.
Opec estimated that demand would contract by 1.57 million bpd or 1.83 percent in 2009. In its previous monthly bulletin released in April, Opec had been pencilling in a contraction of 1.37 million bpd for 2009. The cartel suggested that "a slow recovery may kick in during the last quarter of the year."
The recent swine flu pandemic was "already affecting aviation fuel demand world-wide. Gasoline demand, on the other hand, is starting to pick up as a result of the summer driving season. Weak industrial production, high unemployment rates and a slowdown in travel are the main factors behind the collapse in oil demand," it said. Opec is meeting in Vienna on May 28 to decide whether to cut production in order to prop up prices. Opec has already reduced its oil production target by an overall 4.2 million barrels per day since September to 24.84 million bpd, the lowest level since just after the US-led invasion of Iraq in 2003.
Last month, the oil cartel's secretary general Abdalla El-Badri said Opec wanted to see oil prices rising to more than 70 dollars a barrel. "The price of 50 dollars is not enough to cover investment costs for the future. The price which allows reasonable and acceptable revenues is more than 70 dollars a barrel," El Badri said.
On Wednesday, world oil prices were higher, but remained below 60 dollars per barrel as traders awaited publication of the weekly US energy stocks report. Oil had topped 60 dollars on Tuesday for the first time in six months, boosted by a plunge in the greenback that made dollar-priced crude cheaper for buyers armed with stronger currencies.
New York's main futures contract, light sweet crude for delivery in June, rose 78 cents to 59.63 dollars a barrel on Wednesday. The contract had struck 60.08 on Tuesday, reaching the highest level since mid-November. The price of London Brent North Sea crude for June delivery gained 84 cents to 58.78 dollars per barrel.