Sam Fletcher
Senior Writer
In its August report, the Organization of Petroleum Exporting Countries reduced its 2008 estimate of global economic growth to 3.9%, down from 4% from the previous month and one percentage point lower than the same period in 2007. It lowered its 2009 estimate to 3.8%, due primarily to downward revisions in all major regions of the Organization for Economic Cooperation and Development.
In contrast, the expected 2009 growth rate for developing countries was unchanged at 5.6%. India's growth was revised up to 7.7% while China's was unchanged at 9.2%.
"US economic expansion next year is now projected at 1.3%, down 0.3 percentage points from the previous month, but still higher than the prospect of 1.1% growth in Japan and the Eurozone," OPEC said.
"The dollar strengthened on the perception that the rest of the world—mainly other OECD regions—were facing increasing headwinds and were slowing down fast, while the US is seen to have been more proactive in resolving economic and financial sector problems. Japan is on the brink of recession after second quarter real gross domestic product fell at an annualized rate of 2.4%," said OPEC officials.
OPEC's basket of 13 reference crudes peaked at $140.73/bbl July 4 on a weak dollar and geopolitical tensions. But later in the month, the basket price fell $13.55 or almost 10%.
Reduced demand, increased OPEC oil exports, and a recovering dollar helped calm the market in August, said cartel officials. "Although the uptrend revived following recent supply disruptions in the Caucasus, the momentum was short-lived as speculative funds continued to exit the crude oil futures market," they said. As a result, OPEC's basket price plunged to a 3-month low of $109/bbl Aug. 12.
Seven-year low
In the Houston office of Raymond James & Associates Inc., analysts said, "OPEC has left its forecast for 2009 demand growth at its lowest levels in 7 years and has warned that consumption could fall further. Obviously, we've found a price that slows oil demand, but in our view, long-term oil fundamentals remain strong."
A slowing economy and high oil prices have cut US oil demand this summer. Transport and industrial fuels declined the most, pushing total US oil demand down by 3.8% or 800,000 b/d in the first 7 months. US gasoline has been on the decline all year, and strong summer demand, and growth in China, the Middle East, and Asia has not been enough to offset the huge decline in OECD oil demand in the second quarter.
The recent sharp fall in crude prices may improve refining economics and cap discretionary cuts by refiners. The only major risk for product markets would be possible refinery outages due to hurricane activity in the Gulf of Mexico, OPEC said.
"Deteriorating demand in the OECD countries, particularly in the US, along with costly crude oil significantly undermined refining economics across the world in July," said OPEC officials. That may be exacerbated with the approaching end of driving season. "This weaker trend is likely to be enhanced by new refinery capacities coming onstream in coming months," they said.
"World oil demand in 2008 is forecast to grow by 1 million b/d with a slight 30,000 b/d revision from the previous forecast. In 2009, world oil demand is forecast to grow by 9 million b/d, unchanged from the previous forecast and 100,000 b/d lower than demand growth in 2008," OPEC said. "With growth expected at 1.2 million b/d, non-OECD countries will account for all of the world oil demand growth next year. Due to a major slowdown in transport and industrial fuel consumption not only North America but also in OECD Europe and Pacific, oil demand growth will be on the decline in 2009, which will take the world oil demand growth the lowest since 2002," OPEC said.
OPEC expects non-OPEC oil supply to increase by 580,000 b/d in 2008, unchanged from the previous outlook, with upward supply revisions in the US, Mexico, UK, and China generally offsetting downward adjustments for Canada, Norway, Australia, India, Malaysia, Vietnam, Brazil, Russia, Kazakhstan, and Azerbaijan.
In July, total OPEC crude output averaged 32.6 million b/d, representing a gain of 235,800 b/d over the previous month due to higher production from Saudi Arabia, Iraq, Nigeria, Kuwait and the UAE. Preliminary global oil supply figures—combining non-OPEC supply, OPEC production, and OPEC NGLs and non-conventional oils—indicate a July increase of 600,000 b/d in world oil supply from June. In 2009, non-OPEC oil supply is expected to grow steadily by 900,000 b/d.
(Online Aug. 18, 2008; author's e-mail: [email protected])