Daily trading volumes on London's International Petroleum Exchange (IPE) have hit a new high, just ahead of a surprise boost in crude oil prices.
IPE said 105,270 lots of Brent crude oil futures contracts changed hands Jan. 6, equivalent to more than 105 million bbl of oil and surpassing the previous record set on July 16, 1998, of l03,038 lots.
The high trading volume is seen as a result of market oversupply and market uncertainty. The IPE said 1998 was a "tremendous" year, and it expects volumes will be even higher in 1999.
Meanwhile, London's Centre for Global Energy Studies (CGES) said that, while the East Asian economic collapse slashed 1.2 million b/d from expected global crude oil demand in 1998, a tentative recovery in global demand is anticipated this year.
Oil price riseAt the close of London trading on Jan. 6, Brent crude for February delivery stood at $10.76/bbl, while dated Brent was valued at $10.41/bbl, more than $1/bbl up on the contract's record low in December (OGJ, Dec. 14, 1998, p. 28).
But by close of business on Jan. 11, Brent crude for February delivery had reached $12.18/bbl, while dated Brent stood at $12.13/bbl, reflecting the appearance of the first sign that worldwide stocks are beginning to fall.
American Petroleum Institute figures published on Jan. 6 revealed that crude oil stocks in the U.S. for the week ended Jan. 1 had fallen by more than 14 million bbl on the week.
Inventory levels were still high, but this appeared to be enough to buoy prices until Jan. 12, when Organization of Petroleum Exporting Countries members rejected a call by Kuwait for an emergency meeting to discuss further production cuts.
By the close of business in London on Jan. 12, Brent crude for February delivery had fallen back to $11.83/bbl, while dated Brent had slipped to $11.81/bbl.
Demand reboundAsian demand likely was 200,000-300,000 b/d less in 1998 than in 1997, said CGES, and the potential for oil consumption growth in 1999 depends on the extent to which Asia's problems spread and the speed.
"So far," said CGES, "economic growth in Europe and the Americas appears to have slowed but not stalled, and China and India have managed to remain relatively immune from the recession. We estimate that 897,000 b/d could be added to global oil sales in 1999 compared with just 405,000 b/d last year."
The analyst said almost half of the incremental demand expected in 1999 is likely to come from Organization for Economic Cooperation and Development (OECD) countries.
In the OECD, said CGES, "deliveries will be boosted by lower retail prices, as well as by economic growth. However, another mild winter could wipe out half of the predicted rise in demand."
Production outlookThe analyst said it is difficult to predict by how much non-OPEC production will rise in 1999, given that prices are expected to remain low and some companies have cut upstream spending by as much as a third
"The current International Energy Agency forecast," said CGES, "based on company plans, shows a large increase of 720,000 b/d in non-OPEC production, excluding processing gains.
"A similar, but more cautious, exercise by the CGES yielded an increase of 460,000 b/d. However, this is almost certainly too high.
"Although the conventional wisdom is that non-OPEC supply is not particularly sensitive to oil prices, the experience of the past 10 years suggests that non-OPEC supply does respond to prices, often with a lag of a year or so, as drilling activity and investment plans are modified in the light of changing upstream profitability.
"Given the low growth rates for non-OPEC production outside Europe and Latin America, it is not too difficult to construct a case in which there is no growth at all in non-OPEC output in 1999."
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