Weaker economic recovery is negatively impacting oil demand, the Organization of Petroleum Exporting Countries said in its latest Monthly Oil Market Report as it reduced its forecasts for 2011 and 2012.
The organization cited a weaker-than-expected driving season in the US and ongoing economic sluggishness in the developed countries of the Organization for Economic Cooperation and Development (OECD) as reasons for the latest downward revision to its oil market forecast, which reduces the call on OPEC crude in the second half of this year.
World oil demand growth in 2011 has been revised down by 150,000 b/d from last month’s report as the global economy is now expected to grow at a revised 3.6% in 2011 and 3.9% in 2012, down from previous expectations of 3.7% and 4% respectively. Revisions were triggered by a global slowdown in industrial activity in most of the major economies, the report said.The economic growth forecast for China, though, is unchanged at 9% this year and 8.5% next year, but India’s expansion has slowed such that its 2011 economic growth forecast has been cut slightly to 7.7%
The worldwide oil demand growth forecast for 2011 has been revised down by 300,000 b/d since the start of this year to stand at 1.06 million b/d. This puts average 2011 worldwide oil demand at 87.99 million b/d. The report also estimates that 2012 worldwide demand will average 89.26 million b/d, down 36,000 b/d from last month’s outlook.
The US summer driving season this year missed its peak, sliding by 2% year-to-date compared to the same period last year, OPEC said.
The economic slowdown in the OECD has negatively affected oil demand in China, while India oil consumption has been dampened by measures aimed at limiting its overheated economy, the report said. In the third quarter, OPEC estimates that Chinese oil demand growth will be 200,000 b/d less than forecast in last month’s outlook.
“Looking ahead, the perception of market tightness and worries of supply shortages in the fourth quarter appear to be easing. The increasing risk of the global economic slowdown is negatively impacting industrial sectors. The middle distillates market looks well supplied as US refineries run at high levels,” the report said.
This has contributed to a build in inventories, which have been trending above their five-year average, providing a comfortable cushion ahead of the expected increase in heating oil consumption this winter.
As a result of reduced global economic growth and therefore a downward revision in oil demand, the required crude supply has been revised down in the third and fourth quarters, as OPEC crude oil production continues to increase and a partial return of Libya production is expected soon, according to the report.
“While (the) current OPEC production profile provides sufficient flexibility to take into account the existing uncertainties and downside risks, it is of critical importance to continue carefully monitoring oil market developments,” the report said.