Oil Demand Highest Ever

Jim Brown
 
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OPEC lowered their estimates for demand growth for 2011 and 2012 but they still pointed out that demand would be at record levels later this quarter. Too bad we can't get some record production to go along with that demand.

OPEC said demand would reach an all time record of 88.18 million barrels per day this year. The EIA forecast is for global demand of 88.16 mbpd, up +1.6% from 2010. That will rise to 89.5 mbpd in 2012 according to OPEC.

OPEC blamed the slower demand growth on the fragile global economy that would keep the demand growth to only 1.36 mbpd in 2011. That is slightly lower than their prior forecasts. They do expect U.S. gasoline consumption to rebound in 2012 and they expect increased consumption from Japan in the wake of the nuclear power disruption. Japan will need to consume more oil to offset electrical generation and power the rebuilding process.

Demand from China is expected to rise to 10.09 mbpd, a gain of 520,000 or +5.4% from the current 9.57 mbpd.

Growth in production is expected to come from Brazil, Columbia, USA, Canada and the former Soviet Union. Production declines will be led by Norway, the UK and Mexico. Output from Russia is expected to rise by 30,000 bpd to 10.23 mbpd and keep them in the top spot as the largest producer. However, Saudi is not far behind. The IEA said Saudi Arabia produced 9.7 mbpd in June and could produce 10.0 mbpd in July. That would be an increase of +1.3 mbpd from levels earlier this year. Less than half of that will actually make it to export because of increased demand inside Saudi. They burn oil to produce electricity and desalinate water during the peak summer season. As Saudi continues to construct buildings and communities the demand for both water and power will continue to grow. They have no other option for reliable power. They produced 8.7 to 9.0 mbpd in May depending on whose number you believe.

OPEC expects the call on OPEC oil to rise to 31.0 mbpd in Q3 and 30.69 mbpd in Q4 before dipping back down in Q1 to 29.83 mbpd. For the rest of 2012 they expect the demand to be 28.9 mbpd, 31.33 mbpd and 31.04 mbpd respectively. For reference OPEC production in June was 29.6 mbpd. That was an increase of 520,000 bps over May.

Kuwait increased production in June by 50,000 bpd and the UAE increased by 80,000 bpd. That would be the upper limits of production capacity for both countries.

The IEA believes the call on OPEC will increase to 31.3 mbpd by the end of Q3 and well over their current production even at the increased rates of 29.6 mbpd in June, which included the Saudi, Kuwait and UAE increases. The IEA defended its release of 60 million barrels claiming it would help bridge the shortfall between OPEC demand and OPEC production in Q3.

Prices have already surged back over their pre-announcement levels despite what could be called worrisome demand levels. Even at our current anemic demand levels there will be a shortfall in Q3 that will have to be made up from current inventories.

The IEA has a much stronger outlook for 2012 claiming demand will rise by +1.5 mbpd to 91.0 mbpd by year-end of 2012. Libyan production is not expected to start coming back online in any material amount until mid 2012.

With three different agencies, the IEA, EIA and OPEC all issuing monthly reports with slightly different numbers it is easy to get confused over the forecast. The key is that every one is expecting demand growth to continue to rise by 1.3 mbpd per year into the foreseeable future. Unfortunately they don't see production rising by the same amount and that is the problem that will force the global economy back into recession in the next 18-24 months.

Jim Brown

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