The Organization of Petroleum Exporting Countries reported that the world's economic recovery will drive global oil demand to 85.07 million b/d in 2010, an increase of 0.9%.
In its latest monthly report, OPEC forecast that the world economy will grow 2.9% in 2010 after a contraction of 1.1% this year, with the majority of growth coming from emerging Asian economies including China and India.
OPEC forecasts that oil demand next year would grow 3.7% in China and 3.34% in the Middle East, while falling 1.25% in Western Europe. Meanwhile, it said world oil demand in 2009 was expected to drop 1.63% year-on-year to 84.31 million b/d.
In its report, OPEC also said world oil demand was unlikely to return to precrisis levels in the near future, warning that sustained increase in oil prices could erode crude demand amid a shaky global economic recovery.
Key points of the OPEC report include:
• OPEC's reference basket surged $5.50/bbl, or 8%, in October to reach $72.67/bbl. The bullish sentiment in the market was strengthened by upward adjustments to world oil demand following revision to GDP numbers by the IMF. US dollar depreciation and rising equity prices also contributed to the upward price trend along with counterseasonal draws in US gasoline inventories. The basket stood at $76.50/bbl on Nov. 10. Recent market volatility suggests that crude prices are likely to remain in the high $70s in the near future with price direction continuing to be impacted by economic data and US dollar fluctuations.
• The world economy continues its recovery and is now forecast to grow by 2.9% in 2010 after a contraction of 1.1% in 2009. Most of the growth is expected to come from the emerging Asian economies. China is forecast to grow by 8% and 8.5% in 2009 and 2010 respectively, unchanged from last month. Fueled by the unprecedented fiscal and monetary stimulus, OECD output is expected to show positive growth in the third quarter. Still, it remains to be seen when private consumption expenditures will pick up sufficiently as government support fades. All major OECD regions are projected to return to growth in 2010 with the US forecast to grow at 1.4%, the Eurozone at 0.5% and Japan at 1.1%.
• Most of the signs are aiming toward higher world oil demand growth in 2010; however, downward risk factors highlight the need for caution. World oil demand is forecast to grow by 0.8 million b/d in 2010 following a 1.4 million b/d contraction in 2009, although the potential weak economic recovery may dampen potential demand growth in the coming year. US oil demand remains the major factor driving 2009 demand growth. Despite the improved performance in late summer, recent data indicates a contraction in demand in October.
• Non-OPEC supply is forecast to increase by 360,000 b/d in 2010 to reach 51.2 million b/d. Brazil, Azerbaijan, Kazakhstan, Canada, and the US are seen to be the main contributors to next year's growth, while Mexico, UK, and Norway are foreseen to experience the largest declines. OPEC natural gas liquids and unconventional oil are projected to reach 5.3 million b/d in 2010, indicating a significant growth of 540,000 b/d over the current year. In 2009, non-OPEC supply is estimated to increase by 410,000 b/d, representing a minor upward revision from the previous assessment. In October, OPEC crude production averaged 28.99 million b/d, around 40,000 b/d higher than the previous month.
• Product market sentiment improved slightly in October due to product stock draws in the US, increasing freight movements, and relatively higher demand from industrial sectors. However, rising crude costs have overwhelmed positive developments in product prices and exerted pressure on refining margins, especially in the Atlantic Basin. While a cold winter may provide support for product markets and encourage refiners to increase runs in the coming months, excessive levels of distillate stocks could further constrain refinery operations, impacting crude stock movements.
• US commercial oil stocks dropped by 19.4 million bbl in October to stand at 1,089 million bbl, the largest draw since December 2007. Gasoline and distillate inventories accounted for almost half of the draw. Despite this draw, the overhang with the 5-year average remains considerable at around 70 million bbl. Crude oil inventories dropped 1.7 million bbl, narrowing the overhang to 22 million bbl. Although distillates fell 4.3 million bbl, the overhang remains large. In September, Japan total commercial oil stocks moved against the seasonal trend, falling 11 million bbl with preliminary data indicating a further decline of 9 million bbl in October.
• Demand for OPEC crude in 2009 was revised up 70,000 b/d to now stand at 28.7 million b/d, representing a decline of 2.3 million b/d from last year. In 2010, demand for OPEC crude is expected to average 28.5 million b/d, following an upward adjustment of 110,000 b/d. This indicates a drop of 0.2 million b/d compared to the previous year.
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