OPEC has cut its estimate for oil demand in the second half of 2011 following grim economic news from advanced economies, particularly the US, and revelations that inflation in developing markets may limit growth rates.
The producer’s cartel says “dark clouds over the economy are already impacting the market’s direction”, and downside risks to growth are higher than previously forecast. As a result, OPEC economists have revised their global growth estimate down to 3.7% for 2011 and to 4% in 2012, with most growth coming from emerging Asian economies.
OPEC has also reduced its estimate of growth in world oil demand down by 150,000 barrels per day (bpd) to 1.2 million bpd, with growth in 2012 to also be weaker than previously predicted at 1.3 million bpd.
The demand for OPEC crude in 2011 remains at 30 million bpd, but has been revised down for 2012 to 30.2 million bpd.
In its monthly oil market report, the producer’s cartel said “most recent economic data and indicators point to a significantly higher risk of a broadening weakness in the OECD, with inevitable implications for the developing countries and the world economy as a whole.”
The report, while based on July data, acknowledges “a visible shift towards bearish sentiment” exemplified by broad sell-offs in world equity and commodity markets in the last few days.
Of particular concern to OPEC is the recent downward revision in US growth figures for the last two years, and what it means for oil demand in the near future. US GDP so far in 2011 is barely 1% on an annualized basis, which OPEC says is “worrying, considering the fact that monthly consumption growth in the US has decelerated since February and even turned negative in June.”
US private consumption accounts for one-seventh of total world GDP, and OPEC said “expected higher demand in the US during the peak driving season has not materialized, and gasoline consumption in July declined.”
The IEA, the body representing oil consumer countries, has added to this with its monthly analysis, saying a double dip recession may lead to oil surpluses by reducing energy demand.
The IEA believes global growth of 3% or less would signal a recession in advanced economies. In this situation, demand would grow by just 0.9 million barrels a day in 2011 and 0.6 million bpd in 2012, a reduction from current forecasts of 0.3 million bpd and 1.3 million bpd respectively, the IEA said.
However, the IEA has warned against OPEC producers pre-emptively reducing out put. would have. “There is no justification at the present time for OPEC to think of substantially adjusting production downwards,” David Fyfe, head of the Oil Industry and Markets Division at the IEA, told the Wall Street Journal.
