Oil Demand Estimates Reduced Slightly, Supply Up

Recent estimates by the International Energy Agency (IEA) and OPEC both point to slightly reduced global oil demand due to the impact of higher prices and lower economic growth in the OECD countries, primarily the U.S. The IEA indicated in a report shown below that oil demand will grow 690 kb/d in 2008 and 890 kb/d in 2009. The Oil and Gas Journal (8/25/08, p. 68) reports that OPEC has reduced its estimated global growth rate by .1% for 2008 and warned that 2009 oil consumption could fall. Demand for oil has been reduced most in the U.S. where consumption during the first 7 months of 2008 fell 3.8% or 800 kb/d.  World oil consumption in 2008 was forecast by OPEC to grow by 1 mb/d, down just 30,000 b/d from a prior forecast and is estimated to grow 900 kb/d in 2009, the lowest rate since 2002.  Oil demand is continuing to grow in oil exporting countries, China, India, and other developing countries.

In both cases the demand estimates are lower than previous ones.  Summing the two reports, the bottom line seems to be that world oil demand is still rising but at a slower rate than was previously forecast and at much slower rate than in recent years.  My experience is that the direction of changes in estimates tends to remain the same during a cycle, so I would not be surprised to read in coming months that new estimates of demand for oil will be lower than current estimates.

Meanwhile, OPEC reports that non-OPEC oil supply will increase 580 kb/d in 2008 and is estimated to increase by 900 kb/d in 2009.  The IEA says that  ‘We do think there is a bit of a bulge in new projects coming onstream over the next 12/18 months,’ he said. ‘But after that non-OPEC growth continues to look pretty sluggish again.’  Other recent reports note that OPEC supply is bulging.  OPEC recently voted to keep its quotas in place but to produce to its quotas, which would have the effect of reducing supplies by 500 kb/d.  But the Saudis immediately said they would keep producing as much oil as they they can sell.  The Saudis are reported to be producing 9.5 mb/d, a very significant increase over recent years.

In sum, it seems like the world should be well supplied with oil in 2008 and 2009 as my recent megatrends analysis indicated and as other analysts have also indicated.  It appears that the Saudis are quite happy to see oil prices come off their recent high - not a surprise since the King went so far as to call a global meeting some months ago of oil ministers to devise plans for reducing the price of oil.  Many oil producing countries seem to want to protect the $100 per barrel price, but the Saudis seem not to be in that camp.  So for the moment at least there is a split among the world’s major oil producers as to what price outcome is desirable.   Supply and demand dynamics through 2009 do not seem favorable to those who want higher prices.

IEA cuts oil demand growth forecasts

(Reuters)
10 September 2008

LONDON - World oil demand will grow by less than expected this year and next due to high prices and weaker economic conditions, the International Energy Agency said on Wednesday.

In its September Oil Market Report, the agency lowered its 2008 world oil demand growth forecast by 100,000 barrels per day (bpd) to 690,000 bpd and also trimmed its forecast for 2009 global demand growth by 40,000 bpd to 890,000 bpd.

‘High prices are having an impact on demand,’ said David Fyfe of the IEA. ‘The OECD (countries) are feeling the impact.’

The IEA, adviser to 27 industrialised nations on energy policy, noted anecdotal evidence of a more permanent downward trend in demand in the United States, the world’s biggest energy consumer.

These included a marked shift to more efficient vehicles, changing mobility and driving habits, signs that suburban living was gradually losing its appeal, the agency said.

Oil prices reached a record peak of $147.27 a barrel on July 11, but have fallen about 30 percent since then partly in response to signs of falls in demand.

The Organization of the Petroleum Exporting Countries responded this week with a cut in output targets of half a million barrels per day.

The agency saw any move to limit supply as potentially counterproductive when the global economy is in a fragile state.

CHINA DEMAND

The IEA said demand remained strong in emerging market countries, where oil is often subsidised, insulating consumers from the effects of high prices.

Demand growth from China, the world’s second biggest energy consumer, is set to remain strong, despite a weakening world economic outlook.

‘We are still working on the basis of pretty strong growth in oil demand of 5 to 6 percent from China going forward,’ Fyfe said. ‘We think it’s premature to talk about a choking off of Chinese demand yet.’

Global supply fell by 1 million bpd in August to 86.8 million bpd, the IEA said. This was due in part to North Sea maintenance, lower OPEC supply and disruptions to the Baku-Tbilisi-Ceyhan pipeline.

But oil inventories look more comfortable.

Stocks in OECD countries rose by 47 million barrels in July. ‘A large, unseasonal crude build from a revised June base and weaker demand leave end-July cover at 54.5 days,’ the IEA said.

The agency cut its forecasts for oil supplies from non-OPEC producers by 180,000 bpd for 2008 and by 85,000 bpd in 2009.

‘We think non-OPEC supply could temporarily peak because of above-ground factors,’ said Fyfe. These included limits to access, delays, cost inflation and regulatory and fiscal uncertainty.

‘We do think there is a bit of a bulge in new projects coming onstream over the next 12/18 months,’ he said. ‘But after that non-OPEC growth continues to look pretty sluggish again.’

Posted in Categories: Commodities, Contributor, External Research, USA.

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