OPEC Boosts Oil Demand Forecast on Bullish Economic View

LONDON (Dow Jones Newswires), Nov. 4, 2010

The Organization of the Petroleum Exporting Countries Thursday boosted its global-oil demand forecast in the medium term after being surprised by a swifter-than-expected economic turnaround this year.

In its annual outlook report, OPEC upgraded its global oil consumption forecast by 800,000 barrels a day for 2014, saying it is now "more optimistic regarding the speed of economic recovery."

The group noted, for instance, evidence that US credit risk is back to normal, and Germany's recent exports success.

The group, whose members produce about 40% of the oil consumed each day in the world, tends to take a more conservative view than the International Energy Agency, an energy consumers watchdog which is releasing its own forecast next week.

However, OPEC said demand growth for its own oil would be sluggish in the coming four years. That may signal that it will exercise caution before any change in quota targets as it competes for consumers with other producers, notably in the U.S.

The overall reassessment is in striking contrast with last year when OPEC downgraded its medium term demand forecast as it warned the recovery would "gather momentum only gradually" and wouldn't rule out "a lengthier global recession."

OPEC now expects a growth of 4.4 million barrels a day in oil demand from this year to 89.9 million barrels a day in 2014. For this year, the organization now sees global oil demand growing by one million barrels a day, twice what it had expected in its previous annual report and reversing a decline in 2009.

The revised estimate follows an upgrade of OPEC's world economic growth forecast this year from 2.1% to a robust 3.9%, and from 3% to 3.7% in 2011.

OPEC's view on economic growth follows a recent upgrade from the International Monetary Fund.

In its World Economic Outlook released in October 2010, the IMF revised upwards its forecast for global growth for 2010 from 4.6% to 4.8%, over a faster-than-expected economy pick up in the first half. But it said world output growth would slow to 4.2% next year.

Much of the oil demand growth will come from emerging markets, where 430 million new cars will hit the roads within 20 years. OPEC says oil demand from developing countries will overtake those of industrialized nations in 2016.

However, OPEC warned of constraints over the economic recovery in industrialized countries, notably high level of debts in Europe or the planned easing of fiscal stimuli.

The organization said it still expects oil demand in those markets to fall slightly between now and 2014.

In a period of economic growth, OPEC has been routinely pressured by consumers to bring more oil to the markets.

But it says its members won't fully capture the revived appetite for crude as they face competition from non-OPEC supply.

Total non-OPEC supply in oil, natural-gas-liquids biofuels, and other non-conventional oil will increase by 2.2 million barrels a day over the 2009-2014 period, driven by Russia, Kazakhstan, Brazil and the U.S. Gulf of Mexico.

Indeed, despite a moratorium and tighter regulations following the Deepwater Horizon disaster, OPEC expects that in 2014 US Gulf of Mexico production will be close to two million barrels a day, up nearly 800,000 barrels a day from 2009.

The forecast contrasts with the views of the IEA, which cautioned in July that regulatory and legal uncertainties in offshore oil drilling could cut U.S. oil output by as much as 300,000 barrels a day by 2015.

Discoveries of non-conventional natural gas -- the so called "shale gas" -- in North America will also drive more demand away from oil than expected.

So the amount of crude that will be required from OPEC will rise slowly, from 29.3 million barrels a day in 2010 to 30.6 million barrels in 2014, one notch lower than in the previous assessment.

The organization warned that "downside demand risks for OPEC oil are substantial, suggesting that rising levels of unused capacity are a real concern."

Indeed, the organization has broadened assumptions for its crude oil spare capacity--extra crude OPEC can produce if needed--to 6-7 million barrels a day from six million barrels a day in the previous report.

The organization also warns it still has a blurred view of its long-term supply market, blaming in particular what it calls "overly ambitious targets" in the US and Europe. Between its most optimistic and most pessimist scenarios, the differences for OPEC investment over the next decade reach a staggering $230 billion in real terms.

But John Hall, Chairman of UK-based consultancy EnergyQuote, said it was up to OPEC to react more swiftly to market developments.

"The market seems to want more oil but OPEC is not giving it," Hall, said in reference to the group's decision to maintain its quota. Instead, "customers are buying it from Russia."

"OPEC needs to put its act together, otherwise, it could lose its position" of influence on oil markets, he said.

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