Sam Fletcher
OGJ Senior Writer
A few days before its Mar. 15 meeting in Vienna, the Organization of Petroleum Exporting Countries reduced its latest forecast of 2009 world crude demand by 400,000 b/d for a total loss of 1.01 million b/d to 84.6 million b/d.
"The world economy is in a dreadful situation with gross domestic product sliding into the red for the entire year of 2009," OPEC said. "Consequently, world oil demand is slipping steeply to a record low year-over-year."
In that same period, the International Energy Agency, Paris, projected global oil demand will fall 1.3 million b/d to 84.4 million b/d in 2009, down 300,000 b/d from its previous forecast. At KBC Market Services, a division of KBC Process Technology Ltd. in Surrey, UK, analysts projected the demand "collapse" at 1.6 million b/d.
As expected, OPEC members did not reduce quotas at their mid-March meeting but called instead for stricter compliance with previously approved production levels. Sources said OPEC was at 79% compliance in February with its December decision for a total reduction by 4.2 million b/d to 24.85 million b/d.
KBC analysts claimed, "The reality is that in December, when OPEC announced its most recent production cut, world oil demand in 2009 was widely believed to be falling by 'only' 400,000 b/d." As a result, OPEC's reduction target "deals with yesterday's problem and further action is needed to deal with today's even worse environment," they said. Eventually, the odds must favor another production cut.
KBC analysts said, "OPEC countries need higher prices. A $45/bbl world does not satisfy their immediate budget needs, and it certainly does nothing to ensure that the medium term investment in new capacity that is needed—particularly in the upstream—can happen."
OPEC estimated demand for its crude at 30.9 million b/d in 2008, down 500,000 b/d from 2007. It expects demand for its crude to average 29.1 million b/d in 2009. OPEC's production declined 700,000 b/d in February, according to secondary sources. OPEC NGLs and nonconventional oils are expected to average 4.8 million b/d in 2009, an increase of 400,000 b/d from the previous year.
IEA outlook
IEA estimated global oil supply at 83.9 million b/d in February, down 1 million b/d from the previous month and 3.4 million b/d from the same period a year ago. It put OPEC production at 28 million b/d in February, down 1.1 million b/d from January. "Full compliance with agreed cuts…would take OPEC output 1.6 million b/d below the 2009 'call', implying a potential draw in OECD stocks," IEA said.
OPEC estimated non-OPEC oil supply fell 200,000 b/d in 2008, broadly unchanged from its previous report. In 2009, OPEC expects non-OPEC oil supply to increase 400,000 b/d over 2008. However, the Centre for Global Energy Studies, London, said, "OPEC usually overestimates non-OPEC oil production, and their most recent forecast for 2009 is no exception." CGES analysts estimate non-OPEC production may be down as much as 450,000 b/d in 2009.
CGES said, "Mexico, Russia, and China are all struggling to maintain their oil output and, as reported by IEA, Azerbaijan is experiencing more problems with its production at the Azeri-Chirag-Guneshli complex. OPEC's estimate that non-OPEC supplies will increase…could help persuade its members to trim output later on in the year, especially if the global contraction in oil demand proves to be more severe than current forecasts."
Analysts in the Houston office of Raymond James & Associates Inc. said, "We continue to believe that the IEA's forecast for 2009 global demand and non-OPEC supply are too high and need to be revised lower."
Olivier Jakob at Petromatrix, Zug, Switzerland said, "IEA went neutral on the revisions before the OPEC meeting," with the 300,000 b/d reduction in demand offset by a 400,000 b/d reduction in non-OPEC production to zero growth. He said, "The 'call on OPEC and stocks' is thus increased by 100,000 b/d to 28.9 million b/d for 2009, and this compares to an IEA estimate of OPEC production in February of 27.99 million b/d. The demand revisions were priced-in but not the supply revisions; hence the IEA report should be a market-positive input that will also contribute through a flat growth outlook on non-OPEC to bring further focus to the supply side of oil in a sub $40/bbl environment.
IEA saw "a steady gain" to 2-month highs in a $41-45/bbl range through early March due to OPEC compliance, with West Texas Intermediate topping North Sea Brent for the first time since late 2008.
This feature will appear next on Mar. 30, 2009.
(Online Mar. 16, 2009; author's e-mail: [email protected])
