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February 2nd 2010 edition |
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Iraq: the contracts keep on coming Schlumberger looks forward to increased demand Global recovery points to a steady rise in energy demand
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Crude markets were surprisingly resilient during 2009 given the severity of global recession with the deepest contraction since the 1930s and high inventories rising from sagging demand in advanced economies. Prices should increase further as economic activity expands, however, demand upsurge will also require extra production capacity in order to cope better with the next cycle of business expansion. The near-term direction depends on consumption levels, especially in the US and China. Should the upturn in the global economy prove shallow and slower than expected, market focus will revert back to sluggish oil fundamentals. As Ali Naimi, the Saudi Oil Minister, neatly put it, “Economic growth is the name of the game.” The International Monetary Fund (IMF) sees world output growing at 3.1 per cent in 2010, versus last year’s 1.1 per cent contraction. Plunging manufacturing output negatively affected industrial fuel usage, reflected in a 2.1mn bpd slump in OECD 2009 demand. This was offset by relatively strong demand in Emerging Asia and the Mideast Gulf. China’s infrastructure spending and Saudi Arabia’s investments in power generation underpinned consumption, rather than industrial production. World oil demand, which grew on average by 1.7 per cent a year over 2000-2007, fell in the preceding two years – the first time since 1983 that this had occurred. This reflected weak economic activity and growing conservation and substitution toward alternative energy sources such as nuclear power, biofuels, coal, liquefied natural gas and various renewables – in response to expensive oil. During 1998-2008, global oil intensity declined by 2.2 per cent/year on average. The advanced nations are using less oil per unit of output, compared to BRICs (Brazil, Russia, India, and China) as they expand their industrialisation drive powered by soaring fuel consumption. Oil demand in such places is ‘inelastic’ – ie it does not react to price. To read the full report, see the latest issue of Oil Review Middle East. |
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