OPEC Raises Outlook for Oil Demand

Jim Brown
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OPEC said oil demand from the emerging economies of Asia, the Middle East and Latin America would push consumption higher in 2011.

OPEC said upgraded its demand estimates by +140,000 barrels per day for 2011 to an increase of +1.05 million barrels per day over 2010. This would put oil consumption at 86.56 mbpd according to OPEC. The cartel said demand growth would remain balanced between the first and second half but demand would remain moderate because of the uncertain pace of the economic recovery.

OPEC expects the demand for OPEC crude to rise by 200,000 bpd in 2011 to 28.9 mbpd. That is an increase of 93,000 bpd over their estimate just last month.

The OPEC numbers are about 1 mbpd lower than the recently released estimates from the International Energy Agency (IEA). The IEA now expects demand to be in the range of 87.9 mbpd in 2011.

The 11 OPEC nations bound by quotas raised production by 120,000 bpd last month compared to June. Excluding Iraq, which has no quota, OPEC members pumped 26.86 mbpd in July. That means compliance with the 2008 production cuts of -4.2 mbpd has fallen to 52%, down from 55% in June. To put that in English the -4.2 mbpd production cut is now down to only a cut of 2.18 mbpd. If the cheating continues to grow there will be no cut by the end of 2011. The next OPEC production meeting is Oct 14th.

OPEC said new oil production from outside OPEC would rise by 60,000 bpd in 2011 and come from projects in Brazil, Canada, Azerbaijan, Columbia and Kazakhstan.

OPEC also said the current inventory glut would continue through the coming quarters. The group projects global GDP in 2011 will average 3.7% and slightly lower than the 3.9% estimate for 2010. Harry Tchilinguirian, a commodity strategist at BNP disagrees with the OPEC demand estimates saying oil demand will decline in line with the decline in GDP.

Iran is going to find it increasingly harder to sell their oil. The U.S. warned on Friday that banks dealing with Iran would be barred from accessing the U.S. banking system. These new regulations were passed by Congress in June and there is a strict prohibition against dealing with any Iranian firm that may be associated with the nuclear project or their missile programs.

Of course Russia said on Saturday they were increasing shipments of gasoline to Iran despite the sanctions. Thanks guys for all your help.

The threat to international banks of being cut off from the U.S. banking system is a major move. What foreign bank wants to be cut off from doing business with U.S. firms? This threat will cause many of them to think long and hard about continuing to do business with Iran.

In response Iran said it would sell oil in any currency that the buyer wished to use. "The cost of the currency translation would be borne by Iran in the interest of avoiding transactions in dollars." That means they will even take pesos and the cost of translating those pesos back into Iranian Rials would be at Iran's expense. Obviously Iran is hurting for sales and the sanctions are causing pain but they are still charging forward with their enrichment program. Earlier in the week Iran said they would no longer accept payment in dollars or Euros but that comment was left out of the later press release so they may have rethought that claim.

Oil Rig Count Explodes Higher

Baker Hughes said the rig count spiked by 35 rigs last week to 1,640 and the highest level since December 2008. Texas was the big winner with a gain of 29 rigs to a total of 720. Gas rigs rose by nine to 992 and the highest level since Feb-2009.

Oil rigs rose by 25 to 636 and the highest level since 1991. This is a result of what I have been reporting over the last couple weeks. Companies are fleeing the shale gas fields and are trying to switch to a higher ratio of oil production. Oil prices continue to remain high while gas prices remain low. For the same amount of drilling effort it makes sense to target oil.

They are also fleeing the hydraulic fracturing debate and the potential for a 12-month moratorium in the Marcellus shale. However, Pennsylvania did gain four rigs last week.

Jim Brown

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