OPEC ups oil demand forecasts, warns of economic slowdown

By Margaret McQuaile

August 13 - OPEC on August 13 nudged up its forecasts of world oil demand and demand for its own crude, but warned that the second half of this year was likely to see the pace of economic growth slow as countries phase out fiscal stimulus and signs of overheating become apparent in some major emerging markets.

The world economy faces "headwinds" that will slow the momentum of growth, and recent projections that world oil demand growth will return to levels seen before the global recession appear to be "exaggerated," the oil cartel said.

Indeed, it said, annual oil demand growth is likely to remain around 1 million b/d for the foreseeable future, well below the pre-recession annual average of around 1.7 million b/d.

Having revised its previous forecasts of a month ago upward by 140,000 b/d, OPEC now sees world oil demand growing by just over 1 million b/d both this year and next, from 84.46 million b/d in 2009 to 85.5 million b/d in 2010 and 86.55 million b/d in 2011.

Volume increases totaling 200,000 b/d from Nigeria, Saudi Arabia, the UAE, Venezuela and Iraq were partly offset by 100,000 b/d of decreases from Angola and Iran.

The biggest single increase came from Nigeria, which boosted output by 110,000 b/d to 2.12 million b/d, while Angolan output dropped by 90,000 b/d to 1.75 million b/d.

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"Given the projected slowdown in the world economy in the second half of this year, there is need to be cautious about forecasting oil demand for the remainder of 2010," OPEC said.

"Moreover, other factors such as government policies could impact the growth in demand. For example, the Chinese government’s recently announced plans aimed at fulfilling energy efficiency targets set in the five-year plan by end-2010 may impact energy and oil demand for the rest of the year."

The group does not expect conditions to be much different in 2011. "In fact, world economic growth is projected to be lower next year than in the current year — at 3.7% versus 3.9% — as fiscal and monetary tightening reduce the unprecedented support extended over the previous two years," it said.

"Thus, continued slow growth in oil demand is expected in 2011 with the forecast averaging around 1 million b/d — a level of growth that appears more realistic going forward, given the large uncertainties.

Because the pace of world oil demand growth is outpacing growth in non-OPEC supply, OPEC has been able to raise its forecasts of the call on its own crude by 80,000 b/d in both years.

OPEC sees demand for its own crude at 28.74 million b/d in 2010, down from 28.97 million b/d in 2009. It sees the call then rising by 180,000 b/d to 28.92 million b/d in 2011. OPEC calculates demand for its own crude as the difference between world oil demand and non-OPEC supply.

Referring to the 2011 forecast, OPEC said: "The bulk of the growth is expected to be seen in the first half of the year, while the second half is forecast with a small decline from the previous year."

But OPEC's estimates of the call on its own crude are lower than July production of 29.2 million b/d, as derived from the secondary sources the group uses to monitor its output.

Furthermore, OPEC said, higher-than-expected oil supply alongside a "modest" demand recovery has led to further stockbuilds in recent months, with an overhang in OECD inventories approaching 130,000 b/d in July. Taking floating storage into account, excess supply in July was more than 210,000 b/d.

"Given the current supply/demand outlook, the overhang in inventories is not expected to change significantly in the coming quarters. This highlights the need for increased efforts to strengthen market fundamentals," it said.

OPEC sees oil demand growth coming from the non-OECD region, mainly China, India, the Middle East and Latin America, and with demand concentrated in the industrial, transportation and petrochemicals sectors.

Non-OPEC crude supply is seen at 51.92 million b/d in 2010, 800,000 b/d higher than in 2009 and, thanks to an upward revision due mainly to higher-than-expected output from the US, Russia and China, 60,000 b/d higher than the previous forecast a month ago.

Non-OPEC crude supply is expected to rise to 52.27 million b/d in 2011, a year-on-year increase of 350,000 b/d supported by projected increases in Brazil, Canada, Azerbaijan, Colombia and Kazakhstan.

The cartel has left its forecasts for its own natural gas liquids and non-conventional oil production, which are not subject to OPEC quotas and are counted as part of non-OPEC supply, unchanged at 4.84 million b/d in 2010 and 5.36 million b/d in 2011.

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