OPEC lowers demand outlook amid slowing economic growth

August 09, 2011 | Commodities & Oilprice

OPEC_Office_Vienna

Demand for oil in 2011 and 2012 will rise by less than previously forecast because of sluggish economic growth in the rich world, according to latest forecast published Tuesday by the Organization of the Petroleum Exporting Countries (OPEC).

According to the cartel’s monthly market report, oil demand is set to rise by 1.21 million barrels to 88.14 million barrels per day (bpd) this year. One barrel equals 159 litres.

This represents a rise of 1.39  per cent on 2010, compared with a previously estimated rise of 1.57 per cent.

It was the first time that OPEC lowered the figure since July last year, when the Vienna-based group started providing estimates for 2011.

Global oil demand next year was projected to rise at a rate of 1.48 per cent to 89.44 million bpd. The previous estimate was 1.5 per cent.

‘Much deeper uncertainties and increasing risks to real growth are indications of a more prolonged economic recovery period than earlier anticipated,’ the 12-country group said.

The downgrade came amid a fall in oil prices over the past days, in line with plummeting global stock markets.

In London, the European benchmark brand Brent had dipped below 100 dollars early on Tuesday, but had recovered to 104.37 dollars by afternoon.

OPEC’s basket price fell to a six-week low of 102.37 dollars on Monday, according to the latest available price quote.

Analysts have cited Saudi Arabia’s production increase as one reason for falling oil prices in recent days, along with concerns that the lowered US credit rating and the European Union’s debt crisis could dent oil demand.

OPEC’s total output rose by 400,000 bpd in July and reached 30.07 million bpd. Most of the increase came from Saudi Arabia and Angola.

Analysts at Commerzbank in Frankfurt said some oil producing countries would soon find it difficult to finance their budgets if prices fell further, increasing the chances for an extraordinary OPEC meeting to discuss output quotas. Lower quotas could push prices up.

While the oil market is well supplied, the OPEC reported noted that ‘dark clouds over the economy are already impacting the market’s direction’ and developments needed to be monitored more closely.

OPEC said slow economic growth in the United States could pull down global growth, as the US private consumption accounts for a seventh of the world’s gross domestic product.

The producers’ group also lowered its growth forecast for Chinese oil demand in 2011, from 6.95 per cent to 6.51 per cent.