According to OPEC, the world demand in 2008 is expected to end at an average of 85.83mn barrels per day, a decline of 0.7mn barrels per day YoY. There has been a downward revision of 0.36mn barrels per day from last month estimates. The decline in world oil demand has largely been due to an expected decline in OECD oil demand by 1.5mn barrels per day YoY. In turn the the major fall in OECD oil demand is mainly attributed to the US, the world’s largest economy and the biggest oil consumer. The US officially entered into recession in December 2007. So far approximately 2.0mn jobs have been lost during the year in the US with a staggering 0.55mn jobs in the month of November, the steepest loss in more than 30 years, indicating that recession will last for a longer time which will tame oil demand in 2009.
High oil prices and removal of subsidies in the developing countries in the first seven months led to demand destruction. The credit crunch raised its ugly head in the latter part of the year as bankruptcies and bail-outs became a regular feature, precipitating a slowdown in world economy and hence oil demand which was reflected in the sharply falling oil prices.
The financial crisis has spilled over to the European and other major economies as well. OECD Western Europe oil demand is projected to decline by 0.08mn barrels per day YoY to average 15.2mn barrels per day while OECD Pacific oil demand is projected to decline by 0.19mn barrels per day to 8.16mn barrels per day in 2008.
The fall in demand in OECD countries is being offset by growth in the Non-OECD countries particularly China and the Middle East and the developing countries (DC). China’s demand is projected to grow by 0.42mn barrels per day in 2008 to 8.0mn barrels per day on the back of robust economic growth which is estimated to be 7.5% this year and possible downward revision in retail prices as the crude price has fallen drastically in the last four months. Demand in developing countries is expected to grow by 0.84mn barrels per day to average 25.0mn barrels per day in 2008.
According to OPEC projections the oil demand is expected to decline by 66 thousand barrels per day in 2009 YoY. With the length and breadth of the financial crisis affecting the financial markets world over, these projections are vulnerable to further downward revisions.
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World Oil Supply
According to OPEC, non-OPEC supply is expected to average 49.6mn barrels per day in 2008, a growth of 0.11mn barrels per day over the previous year. There was a downward estimate of 0.11mn barrels per day to the previous month’s estimates.
Oil supply from the USA is projected to increase by around 0.02mn barrels per day to 7.5mn barrels per day in 2008 compared to 2007 levels. There has been a downward revision of 0.02mn barrels from last month’s assessments due to slow recovery of operations which were disrupted by the hurricane activity. Canadian oil supply is projected to grow 0.09mn barrels per day to 3.4mn barrels per day in 2008 while Mexican oil supply is expected to decline by 0.30mn barrels per day to average 3.20mn barrels per day in 2008 which will take the oil demand growth in North America in the negative territory. Mexico’s oil supply is projected to decrease due to a reduction in production from its Cantarell field.
The major decline is projected to arise in Western Europe of 0.24mn barrels per day largely due to a decline in production in Norway by 0.10mn barrels and a decline in UK production by 0.15mn barrels per day.
The major contributors of non-OPEC supply growth are the developing countries. Oil supply from developing countries is projected to increase by 0.30mn barrels in 2008 to 11.26mn barrels per day from 2007 levels. Brazil is the main contributor of growth in the DC group category.
Former Soviet Union (FSU) region oil supply is projected to increase by 0.08mn barrels per day in 2008 while China’s supply is expected to increase by 0.09mn barrels per day in 2008
OPEC oil production averaged 31.01mn barrels per day in November 2008, a decline of 0.74mn barrels per day from October 2008 levels, according to OPEC December 2008 monthly report. OPEC production excluding Iraq was 28.70mn barrels per day.
The decline was due to a move towards implementation of the output cut of 1.5mn barrels per day decided by OPEC in the Extraordinary meeting which took place in late October 2008. The following table shows the agreed amounts in the meeting and the decline in production in November 2008. Angola was the only country registering an increase of 33,200 barrels per day in November despite being party to the OPEC output cut.
OPEC Production Cut in October
Country Decrease Agreed in Oct(b/d) Decrease (b/d) in Nov
Algeria 71,000 27,500
Angola 99,000 (33,200)
Ecuador 27,000 500
I. R. Iran 199,000 70,000
Kuwait 132,000 78,800
Libya 89,000 36,700
Nigeria 113,000 40,200
Qatar 43,000 32,500
Saudi Arabia 466,000 392,100
U.A.E. 134,000 120,000
Venezuela 129,000 20,000
Total 1,500,000 785,100
Source: OPEC Monthly Oil Market Report (Nov 2008) and Global Research
The sharp decline in crude oil prices, which have fallen by 69.9%, since it reached an all-time high of 145.16 on 14 July 2008 prompted OPEC to cut its output by record 2.2mn barrels per day in the meeting that took place in Oran, Algeria. The significant cut is aimed at stabilizing oil prices and clears the backlog of a huge oil inventory. The output cut is slightly larger than the market consensus of around 2.0mn barrels per day. This follows the concerns voiced by many quarters relating to possible cancellation of investment in the oil industry and delay of orders in view of a continued fall in oil prices.
Oil Stocks
Total US commercial stocks stood at 1,014.1mn barrels at the end of November 2008, compared to 998.2mn barrels at the end of October 2008. Increase in refinery runs and slack demand increased total oil stocks by 15.9mn barrels in November 2008 reaching their highest levels since September 2007. The increase was mainly due to an increase in Crude oil stocks by 8.6mn barrels during November 2008 to 320.5mn barrels from the October 2008 levels and increase in Gasoline stocks by 2.8mn barrels to 198.9mn barrels in November 2008 from the October 2008 levels. The increase in stocks is largely due to a slowdown in demand.
US on land Commercial Petroleum Stocks
mn bbl Sep 08 Oct 08 Nov 08 Nov 07 05 Dec 08 Nov 08 /Oct 08
(Change bbl)
Crude oil 303.3 311.9 320.5 299.5 320.8 8.6
Gasoline 189.5 196.1 198.9 204.8 202.7 2.8
Distillate fuel 127.2 127.9 127.4 134.8 130.6 -0.5
Residual fuel oil 39.0 38.9 37.5 38.8 38.0 -1.4
Jet fuel 37.5 36.7 38.9 40.2 39.3 2.2
Total 1,002.9 998.2 1,014.1 994.3 1,017.9 15.9
SPR* 702.4 701.8 701.8 695.5 701.8 0.0
Source: OPEC Oil Market Report (Dec 2008)
* Strategic petroleum reserve.
Western European total oil stocks witnessed an increase of 3.3mn barrels during November 2008 to 1,117.5mn barrels from October 2008 levels due to a 2.3mn barrels increase in crude oil stocks to 476.6mn barrels during the same period. Middle Distillates increased by 1.2mn barrels while Fuel oil stocks registered a decline of 0.5mn barrels in November to end up at 357.0mn and 112.3mn barrels respectively.
Western Europe’s Oil Stocks
mn bbl Sep 08 Oct 08 Nov 08 Nov 07 Nov 08/Oct 08
(Change bbl)
Crude oil 474.3 474.3 476.6 480.2 2.3
Mogas 119.9 120.1 120.3 123.7 0.2
Naphtha 28.2 29.9 29.9 28.6 0.0
Middle Distillates 373.9 374.8 376.0 357.0 1.2
Fuel oils 116.7 115.1 114.7 112.3 -0.5
Total products 638.7 639.9 640.8 621.5 0.9
Total 1,113.0 1,114.2 1,117.5 1,101.7 3.3
Source: OPEC Oil Market Report (Dec 2008)
