OPEC is pumping over two million barrels a day more than the market needs, which together with a weak demand picture is prompting analysts to revise down price forecasts for the second half of 2012 and 2013.
According to data included in the International Energy Agency’s latest Oil Market Report released Friday, OPEC producers pumped 31.9 million barrels a day last month, 2.1 million barrels more than the call on OPEC crude for the same period. The gap is expected to narrow to one million barrels a day in the second half of 2012, still enough to weigh on prices.
The IEA, which represents net oil consuming countries, says OPEC maintains an effective spare capacity of 2.57 million bpd.
Sluggish economic growth could restrict annual oil demand growth to 0.9 million bpd in 2012 and 0.8 million bpd in 2013 – IEA figures which accord with OPEC’s latest forecasts – with demand averaging 89.6 million bpd and 90.5 million bpd respectively. Global oil supply is estimated to have grown to 90.7 million bpd.
The IEA cautions that geopolitical issues will continue to “provide something of a floor for prices” for the time being.
A Bloomberg report states that the additional crude is being stored in inventories, with China in particular hoarding crude as the country builds up its own 207 million barrel strategic petroleum reserve.
The stockpiling policy has largely isolated Chinese oil imports from the dramatic declines seen in iron ore and coal imports, as the world’s largest emerging economy slows. The IEA says China experienced growth in apparent oil demand (which excludes stockpiling) “close to zero” year on year.
Oil prices have rallied strongly after the implementation of sanctions against Iran’s oil industry and supply disruptions in Yemen, Sudan, South Sudan, Syria and Norway. The forward dated Brent benchmark closed at $112.95 on Friday having sunk to around $90 in mid-June.
Analysts polled by Bloomberg expect oil prices of around $106 by the end of the year, with the Centre for Global Energy Studies – which tends to come in at the low end of forecasts – predicting a Brent price of $83.
OPEC’s stated production ceiling is 30 million barrels a day. Gulf producers have largely ignored the limit in a bit to avoid demand destruction through high prices, to the dismay of fellow OPEC members Iran and Venezuela, and despite a clear message from OPEC Secretary General Abdallah El-Badri that members would work to “respect” the ceiling.
