OGJ Senior Writer
Global oil demand will grow more this year than it declined in 2009 and will surpass the 2007 record high “at least 2 years earlier than consensus projections” a year ago, said Paul Horsnell, managing director and head of commodities research at Barclays Capital.
The firm expects the first annual demand increase since 2005 among members of the Organization for Economic Cooperation and Development this year. “The latest Joint Oil Data Initiative (JODI) release shows a better profile for OECD demand, recording the first 2 successive months of year-over-year OECD demand growth since January 2006,” Horsnell said.
“Oil demand surprised to the upside in the second half of 2009, and in 2010 has maintained robust growth from that higher-than-expected base level,” Horsnell reported. “What might have looked like a long haul back has instead been much more of a V-shaped recovery. A year ago, the International Energy Agency was projecting that global oil demand would average 83.4 million b/d in the second half of 2009, while they now put the actual second half level at 85.4 million b/d.”
He said the 2010 demand level is 86.4 million b/d in the most recent Medium-Term Oil Market Outlook, compared with the 84.3 million b/d projection a year ago. That additional “wedge of demand” relative to the expectations of a year ago translated to an increase in the expected call on the Organization of Petroleum Exporting Countries' crude in 2010 of about 1.1 million b/d, “once the relative outperformance of non-OPEC supply over the period is accounted for.”
That additional demand “proved critical in keeping OPEC on an even keel in terms of market management,” said Horsnell. “Indeed, the level of OPEC supply has been more or less flatlining since last August. OPEC output was 100,000 b/d lower last May compared with the August 2009 level according to the US Energy Information Administration and 200,000 b/d higher according to the IEA. In all, pretty much flat and totally under control for 9 months would appear to be the best description of OPEC output.”
Year-over-year demand patterns for Asia-Pacific and North American members of OECD continue to improve sequentially. “The laggard is of course Europe, which continues to follow a divergent demand pattern to the rest of the OECD. When the rest of the OECD was very weak in the first half of 2009, European oil demand was relatively robust, but when demand in the rest of the OECD recovered, the European readings weakened,” Horsnell said. “The year-over-year fall in European oil demand in April is put at 704,000 b/d, leaving the overall rise in OECD demand at 193,000 b/d. That is the second straight month of year-over year demand growth in the OECD, and the last time that happened was January 2006.”
Political fallout from the Macondo spill, meanwhile, is escalating, Horsnell noted. The industry’s one apparent victory, a federal judge’s order to rescind the Obama administration’s ban on deepwater drilling, means little “given its likely reimposition and, more importantly, the time it will take companies to meet a complex set of new regulatory requirements,” he said.
New requirements and procedures under the former Minerals Management Service “are complex and likely to take months to process,” said Horsnell. The renamed Bureau of Ocean Energy Management, Regulation, and Enforcement “wishes to be known by the abbreviation BOE, presumably in the hope that it will not be confused with either the Bank of England or the normal abbreviation for barrels of oil equivalent,” he observed.
Horsnell said, “The new BOE regulations and data requirements are complex enough to suggest that even in the absence of a moratorium, there would not be much, if any, further deepwater US gulf drilling this year. Even allowing for no additional moratorium, and assuming that a company can meet the BOE regulations to the full satisfaction of the BOE and get all its backers, insurers, and contractors in agreement and in place swiftly, we still would not expect drilling to resume."
He said, “Some company would have to deliberately step out in front of a government that did not want it to drill, with all that could ultimately entail, knowing that even the slightest glitch in any of their operations would be magnified in a potentially disastrous fashion. It does not sound a particularly likely scenario, in our view, even if the BOE regulations were not the real binding constraint on the resumption of operations.”
(Online June 28, 2010; author’s e-mail: email@example.com)