Global oil markets digest news of lower demand estimates

China (Platts) -- Nov 12 - 18, 2008

By reporters at Platts, the energy information division of the McGraw-Hill Companies. For more information about Platts' information products in China, contact Platts at china@platts.com, or call its representative office in Guangzhou at (+86) 20 2881 6588.

Benchmark oil prices during the past week edged closer to the significant $50/barrel support level, last seen almost two years ago.

By Tuesday during the Asian morning, front-month WTI was trading at $55.02/barrel after having hit a new bottom of $54.95/barrel the previous day.

The latest level was down slightly from $59.33/barrel posted at the same last week but was significantly off from $95.40/barrel a year ago.

Prices are currently closer to the all-time low of $10.70/barrel set a decade ago than the peak of $145.31 that was witnessed this July.

The most immediate factor that came to the forefront was a decision by OPEC to slash its official forecast for world crude oil demand in 2008 and 2009 in its latest monthly oil market update.

The revised outlook overshadowed any gains that could have been realized by talk of yet another round of production cuts by OPEC members.

The market almost completely ignored a gathering of the group of 20 industrial and developing countries in Washington over the weekend.

The group concluded the one-day meeting with promises for future action, laying the groundwork for their next meeting on April 30, 2009.

Bracing for more output cuts: OPEC says demand suffering more than expected

On Monday, OPEC has cut its estimates of global crude oil demand, saying that global economic turmoil continues to have a negative impact on consumption.

In its latest monthly oil market report, OPEC said it now expects oil demand to rise by 490,000 b/d in 2009, down from a previous estimate of 760,000 b/d growth, compared with this year.

In outright terms, OPEC cut its estimate of world oil demand in 2008 by 260,000 b/d to 86.19 million b/d, and reduced the same figure for 2009 by 530,000 b/d to 86.68 million b/d.

This represents an anemic growth rate of less than 1% in 2009, while 2008 will effectively be almost flat from 2007.

Demand growth next year is expected to be largely confined to China and the Middle East, with consumption in the developed countries making up the OECD falling to 47.42 million b/d from this year's expected average of 48.01 million b/d.

Acknowledging that the market is still largely demand-driven, the report said, "the downbeat economic forecasts have darkened the outlook for oil demand substantially.

The global economy is slowing down faster than expected.

It is almost certain that the major OECD countries are now in a synchronized recessionary phase and the rest of the world is being affected to a greater degree than previously anticipated."

OPEC's pessimistic forecast for oil demand paved the way for anther round of production cuts that are widely expected to take place in the next several weeks.

The cartel will gather again for emergency talks in Cairo on November 29, when it will likely decide on whether to cut output, OPEC president Chakib Khelil said late last week.

"We will have the information we need after the month of November and it may be in early December that we will have precise data," Khelil said.

OPEC last decided on October 24 to cut supply by 1.5 million b/d starting November 1.

"It will be in December when we expect to see a reaction from the market (in response to the current round of output cuts)," Khelil said.

The next date to look out for is December 17, when OPEC will meet in Oran, Algeria. Many observers believe OPEC is intent on defending a price floor of $60-70/barrel.

Updated: November 18, 2008

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