OPEC Warns Oil Demand is Slipping

Jim Brown
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In its monthly report OPEC said signs of an economic slowdown in industrialized nations forced the group to rethink future demand levels.

OPEC said the OECD nations were seeing a slowdown in economic activity and that downturn was discouraging. OPEC blamed the decline on OECD countries no longer being able to afford stimulus plans in the second half of 2010. Because of this decline in activity OPEC expects oil demand in Western Europe to fall -260,000 bpd in Q3 and another -150,000 bpd in Q4.

Despite this downgrade to OECD activity OPEC did raise its global oil-demand estimates for 2010 by +10,000 bpd to 85.51 mbpd. OPEC estimates are typically lower than the International Energy Agency (IEA) and their report is due out on Friday.

OPEC said the slowdown in global economic activity is becoming "more pronounced" than had been anticipated and could eventually warrant additional stimulus spending and the delay of some fiscal deficit-reduction plans.

OPEC also said the demand for OPEC oil would be less than previously expected because of an increase in production from non-OPEC nations. OPEC believes the "call on OPEC" will be an average of 28.2 mbpd in 2011. That covers all 12 OPEC nations. That is -100,000 bpd less than OPEC predicted in last month's report.

OPEC believes the global oil demand in 2011 will average 86.56 mbpd. Estimates were raised for production from Mexico, Oman and Equatorial Guinea. OPEC expects non-OPEC nations to produce 52.42 mbpd in 2011. They expect global demand to increase by 1.05 mbpd in 2011 because of increased consumption in Asia, Latin America and the Middle East.

Last month the IEA predicted global demand in 2011 would be 87.9 mbpd.

Output from the 11 OPEC nations bound by quotas declined -37,000 bpd to 26.799 mbpd in August. That is a 53% compliance rate to the 2008 quotas. They are currently producing 1.96 mbpd more than their published quotas.

Basically demand is flat and unless the OECD nations pull out of their lethargic stupor it could be flat for a long time. Asia, Latin America and the Middle East are the only major growth areas. Europe is in decline and the USA is likely to decline over the next three months. Eventually, and it is only a matter of time, we are going to see some economic traction and demand will rocket off the charts. The worst of the economic problems are over and slow growth is just that, very slow and boring. Once the activity begins to pick up it tends to feed on itself and accelerate rapidly. When that happens these monthly demand and production reports will become a lot more exciting.

Jim Brown

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