OPEC expects pick up in global oil demand

OPEC-headquartersOPEC’s June 2015 monthly report, issued on 10 June, notes that the OPEC Reference Basket averaged more than US$62 per barrel in May, representing a new high for the year and up from an average of US$44 per barrel in January

Firmer seasonal demand for refined products and draws in US inventories in May, were the main drivers behind the recent rebound in crude oil prices, says OPEC, along with expectations for an easing of excess supply. Price support also came from non fundamentals, with speculators increasing net long positions, indicating expectations for higher prices. Nevertheless, overall fundamentals still point to a well-supplied market, comments OPEC.

The global economic recovery has stabilised with growth of 3.3 per cent projected for 2015, in line with growth in 2014, says OPEC, which expects world oil demand to pick up, resulting in a higher annual increase of 1.2 mn bpd, compared to the previous year. OECD demand growth is expected to be led by OECD Americas, while non-OECD will continue to be the main contributor to the total oil demand growth. Risks to the demand forecast for 2H15 include mainly the pace of economic growth and changes in retail prices, as well as ongoing substitution toward natural gas and coal, and policies curbing oil demand.

On the supply side, OPEC notes recent developments in the upstream, as well as renewed oil price volatility. Based on the current market circumstances OPEC expects non-OPEC supply to decline in 2H15 compared to an increase in the first half, leading to yearly growth of 0.7 mn bpd, which is one third of the growth witnessed in 2014.

The above projections for market fundamentals indicate that the current oversupply in the market is likely to ease over the coming quarters, says OPEC.

Based on these expectations for the second half of the year, the OPEC

Conference, held on 5 June, agreed, as had been expected, to maintain output at 30 mn bpd. The move is widely interpreted as a continuation of OPEC’s strategy to maintain market share and put pressure on US shale oil producers.

The IEA notes in its latest report that OPEC supply in May edged up 50,000 bpd to 31.33 mn bpd, the highest since August 2012. Saudi Arabia, Iraq and the UAE pumped at record monthly rates to keep output over 1 mn bpd above OPEC’s official supply target for a third month running.  “Barring unforeseen outages, OPEC is likely to keep pumping at around 31 mn bpd during the coming months as Middle East producers sustain higher rates to preserve market share and meet summer domestic demand,” says the IEA.

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