MARKET WATCH: OPEC sees 'two distinct patterns' in oil prices

The New York Mercantile Exchange and US spot markets were closed Jan. 18 for the Martin Luther King Jr. holiday in the US, but the soon-to-expire February crude contract inched upwards in overnight electronic trading.

Sam Fletcher
OGJ Senior Writer

HOUSTON, Jan. 19 -- The New York Mercantile Exchange and US spot markets were closed Jan. 18 for the Martin Luther King Jr. holiday in the US, but the soon-to-expire February crude contract inched upwards in overnight electronic trading.

That movement came after Qatar's energy minister said members of the Organization of Petroleum Exporting Countries won’t increase production in 2010, said analysts in the Houston office of Raymond James & Associates Inc. “Looking at natural gas, the National Weather Service has warmed up its North American temperature outlook and is currently forecasting above-average temperatures through Jan. 27, which is likely the biggest driver in gas prices trading down 2.5% this morning,” they said.

In its monthly market report issued Jan. 19, OPEC reported “two distinct patterns” in crude prices in December. After falling to a 2-month low of $70.64/bbl on Dec. 14, OPEC’s basket of 12 reference crudes rebounded as positive economic sentiment and colder weather in the Northern Hemisphere triggered a surge in speculative activity, rising to $77.16/bbl on Dec. 31, compared with its Dec. 1 price of $77.88/bbl. As a result, the basket price averaged $74.01/bbl in December—the second-highest monthly figure in 2009 after November.

The OPEC basket price continued climbing to $80.29/bbl on Jan. 7, the highest price since early October 2008. Since then, prices have reversed on economic concerns, milder weather, and inventory builds to $75.79/bbl on Jan. 18, down $1.38 from the Jan. 15 session.

OPEC officials now expect the world economy to grow by 3.1% in 2010, up from its previous forecast of 2.9% growth. “Most of the challenges for the Organization for Economic Cooperation and Development have not gone away entirely, and the region is still dependent on government-led support. In the US, which is now forecast to grow by 1.9%, private consumption remains weak. Japan is expected to grow by only 1.1% despite the recent stimulus package, while the euro-zone forecast is now at 0.6%. China and India remain the bright spots for this year’s recovery with an expected growth of 8.8% and 6.7% respectively, although concerns are emerging that these economies might be overheating,” the report said.

It said world oil demand declined by 1.4 million b/d in 2009, but a cold winter, economic recovery, and a low base for the previous year returned oil demand growth to positive territory by yearend. In 2010, OPEC expects world oil demand to grow by 800,000 b/d.

Non-OPEC oil supply growth for 2009 is estimated at 500,000 b/d, broadly unchanged from the previous assessment. In 2010, non-OPEC oil supply is expected to increase by 400,000 b/d to average 51.3 million b/d, following an upward revision of 42,000 b/d partially from the US and Russia “on the back of healthy production in the fourth quarter of 2009.” Total OPEC crude production increased by 78,000 b/d to 29.1 million b/d in December, the highest level in 2009.

Demand for OPEC crude in 2009 is estimated at 28.7 million b/d, up 100,000 b/d from the previous report. This still represents a decline of around 2.3 million b/d compared to the previous year. In 2010, demand from OPEC crude is expected to average 28.6 million b/d, broadly unchanged from the previous assessment,” according to the report.

Contact Sam Fletcher at samf@ogjonline.com.

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