OPEC reduces demand forecast

Sam Fletcher
Senior Writer

The Organization of Petroleum Exporting Countries expects demand for its crude to average 30.6 million b/d in 2007, a slight decline of 200,000 b/d from the previous year.

On a quarterly basis, demand for OPEC crude is estimated at 31.11 million b/d in the first quarter and respectively at 29.5 million b/d, 30.6 million b/d, and 31 million b/d in successive quarters. In 2006, demand for OPEC crude averaged 30.8 million b/d. The cartel expects non-OPEC supply to reach 50.6 million b/d in 2007, an increase of 1.1 million b/d over the previous year and a downward revision of 57,000 b/d from the last assessment. In 2006, non-OPEC supply averaged 49.5 million b/d, representing an increase of 500,000 b/d over 2005. Total OPEC crude production averaged 30.03 million b/d in May, down 82,700 b/d from the previous month.

However, Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, said, "Reading the numbers rather than the headlines shows that all OPEC members (apart from Nigeria due to strife) have slightly increased production in May vs. April, with the losses of Nigeria offsetting those gains. OPEC will not commit now to a supply increase as it needs to see first how new developments in Nigeria impact production. If it was not for Nigeria, OPEC would have shown a supply increase in May."

OPEC said its basket of 11 reference crudes averaged $64.36/bbl in May, 97¢ higher than in April. Large commercial stocks of crude in the US were offset by a series of refinery glitches primarily in the US during a period of concern over rising demand with the onset of the summer driving season. Raids on oil field facilities and kidnapping of workers in Nigeria kept the market nervous about oil supply.

The OPEC basket price remained volatile in June as Cyclone Gonu threatened petroleum facilities and shipping in the Middle East. Prices rose under pressure from geopolitical tensions to over $67/bbl before dropping to just above $65/bbl. OPEC's basket price had increased to $66.74/bbl by June 14.

In its June report, OPEC forecast growth in 2007 world oil demand at 1.3 million b/d or 1.5%, broadly unchanged from its previous forecast. So far this year, US demand grew 2.3% or 470,000 b/d, boosted by strong gasoline consumption. Construction and petrochemical activity across the Middle East fueled strong oil demand growth in that region, while a robust economy raised oil demand in India by 7.1% or 189,000 b/d in April. That same month, China's demand rose by a stunning 9.8% or 700,000 b/d from a year ago to 7.9 million b/d. China's apparent oil demand in the second quarter is expected to grow by 500,000 b/d to average 7.8 million b/d. For 2006, the world oil demand estimate was revised up by 150,000 b/d from our last month's estimate due to historical revisions in the developing countries, OPEC said.

IEA, EIA numbers
Earlier, the Paris-based International Energy Agency (IEA) raised its estimates of global demand for oil products by 250,000 b/d to 84.5 million b/d for 2006 and by 420,000 b/d to 86.1 million b/d for 2007. It also said in its monthly report that world supplies of crude in May fell by 565,000 b/d to 84.9 million b/d. IEA's estimate of non-OPEC production again was trimmed by 110,000 b/d to 50.2 million b/d, resulting in an overall increase of 900,000 b/d (OGJ Online, June 12, 2007).

"The IEA report and tone has become too predictable and as credible as OPEC," Jakob said. "For OPEC the supply situation is always under control and for the IEA we are always facing an acute shortage. The truth is somewhere in the middle, and in the end the market reacts more to the politically neutral weekly statistics from the US Department of Energy. The weekly DOE statistics will need to provide some support, otherwise the weekly charts will take a turn for the worse."

In its latest available report, DOE's Energy Information Administration (EIA) said US gasoline stocks were unchanged at 201.5 million bbl in the week ended June 8, instead of the 1.2-2 million bbl increase that many had expected. Refinery utilization dipped to 89.2% from 89.6% in the week ended June 8 vs. a consensus expectation for a 0.7% increase. Gasoline production increased slightly, nonetheless; but gasoline imports declined by 350,000 b/d (23%) in the same period. US crude inventories inched higher by only 100,000 bbl to 342.4 million bbl that week. Distillate fuel inventories increased by 300,000 bbl to 122.6 million bbl (OGJ Online, June 13, 2007).

(Online June 18, 2007; author's e-mail: samf@ogjonline.com)

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