OPEC more optimistic about demand for own crude in 2015

The oil price plunge, from as high as $115 per barrel in mid-June 2014 to as little as $45.19/b in mid-January has been punctuated by debate over the fate of US high-cost shale or light tight oil, which has reversed the downtrend in US crude production and dramatically reduced reliance on imported crude.

OPEC’s decision last November to keep its production ceiling in place despite plunging oil prices raised a lot of eyebrows, with many questioning the rationale of the move given that some of the group’s members were hurting from the low prices.

In January, OPEC Secretary General Abdalla el-Badri reaffirmed the group’s decision, saying it made more sense for higher-cost production, meaning oil like US light tight oil, to leave the market ahead of low-cost output like most of OPEC’s.

Oil rose above $60 per barrel for the first time this year. Brent for April delivery was up 95 cents at $60.04 after briefly gaining more than $1. US crude was up 75 cents at $51.96.

OPEC Forecast

New forecasts from Organisation of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) suggest that lower oil prices will have a significant impact on non-OPEC oil supply later this year.

On February 9, OPEC slashed its forecasts of demand for non-OPEC crude in 2015 and raised its expectations of the call on its own crude.

Indeed, the group now expects demand for its crude to grow by 120,000 b/d from 2014 rather than to decline by 330,000 b/d as it forecast a month ago.

OPEC has maintained its expectations of world oil demand averaging 92.32 million b/d this year, with year-on-year growth broadly stable at 1.17 million b/d.

But it has cut its previous forecast for non-OPEC supply by 400,000 b/d to 57.09 million b/d and now expects non-OPEC supply to grow by just 860,000 b/d this year rather than the 1.27 million b/d it forecast a month ago.

OPEC has revised non-OPEC supply downward in all four quarters, but has made the bigger revisions in the second half of the year, with the third- and fourth-quarter forecasts revised downward by 510,000 b/d and 670,000 b/d respectively.

As a result of these quarterly revisions to the forecasts for non-OPEC supply, OPEC has been able to adjust its projections of the call on crude produced by its 12 members back above 30 million b/d in the second half of 2015, to 30.1 million b/d in the third quarter and 30.64 million in the fourth.

CAPEX cuts

Coming in the wake of a slew of capital spending cut announcements from major oil companies, OPEC’s latest forecasts would appear to suggest that the controversial market share strategy driven by Saudi Arabia is working in its favor.

The IEA has taken a longer look at the impact of the price collapse in its Medium-Term Oil Market Report, released on February 10, making sharp revisions to its forecasts for non-OPEC oil supply over the next few years as low prices bite into capital spending plans.

The Paris-based agency now expects non-OPEC supply to expand by just 2.93 million b/d between 2014 and 2019, 1.88 million b/d less than forecast in June last year.

On an annual basis, non-OPEC supply is expected to grow by 570,000 b/d per year, well below record growth of 1.9 million b/d in 2014 and down from an average 1 million b/d over 2008-2013.

Non-OPEC downward forecast

The downward revisions to the non-OPEC forecasts won’t, however, translate into significantly higher demand for OPEC crude, because global oil demand will also grow much more slowly as sharply lower oil prices fail to offset the impact of weaker-than-expected economic recovery in key markets, according to the IEA, which is forecasting an average growth rate of 1.2 percent over the next six years, well below the average for the 2001-2007 period.

Among non-OPEC producers, Russia is particularly vulnerable to the oil price collapse and will see its production contract by 560,000 b/d between 2014 and 2020, according to the IEA.

Among OPEC producers, the IEA sees Venezuela, which is already in the grip of recession, as perhaps the hardest hit by the price crash, with social stability at risk and competing demands for cash drying up the capital available for upstream investment.

FRANK UZUEGBUNAM