As the price of a barrel of oil fell below US$75, Opec predicted a sharp drop in demand this year and the next. The supplier of more than 40 per cent of the world's oil unveiled its latest gloomy oil-market forecast amid continued global economic turmoil as the world faces its worst financial crisis since the 1930s, and as its 13 members prepare to meet in Vienna at an emergency meeting set for Nov 18.
"Dramatically worsening conditions in financial markets indicate strong fallout on the real economy is now inevitable," Opec said yesterday in its latest monthly oil market report. "Ongoing financial market turmoil is expected to continue to impact oil demand well into the coming year." Following a similar revision last month, the group dropped its forecast for average global oil consumption next year by 0.5 per cent or 450,000 barrels per day (bpd) to 87.21 million bpd. It also cut its projection for oil demand this year by 330,000 bpd.
"Total world oil demand growth for 2008 has been reduced to half of the initial forecast," Opec said. It predicted demand for Opec crude would average 31.1 million bpd next year, 870,000 bpd lower than this year. The organisation's latest forecast for demand for its crude this year stands at 32 million bpd, a 260,000 bpd decline from last year. Opec acknowledged that its decision to convene an extraordinary meeting next month was prompted by mounting concerns that financial turmoil might "considerably reduce demand for crude oil". Chakib Khelil, the president of Opec, said last week that a production cut was "very likely".
Yesterday's report indicated that, if anything, key Opec officials felt an intensified urgency to cut quotas. "Even if governments are successful in calming equity markets and unfreezing credit markets in the near future, the fallout on the real economy from financial market headwinds is expected to be considerable. This comes on top of the already-visible weakening of OECD economies and a deceleration of growth in emerging markets," the report said.
As if on cue, oil prices yesterday fell below $75 a barrel for the first time since September of last year, reflecting deepening fears that trillions of dollars pledged for an emergency bailout of the world's banks would be insufficient to keep the global economy from sinking into recession and oil demand from deteriorating further. Crude oil for November delivery slid to $74.97 on the New York Mercantile Exchange yesterday, falling 4.7 per cent from the previous day's close.
A US government report today is expected to show that crude and petrol inventories in the world's biggest oil market increased last week. Many analysts now see a global recession as probable, with prospects dimming for continued growth - even in China's formerly red-hot economy. JPMorgan Chase, the largest US bank by market value, cut its fourth quarter oil price forecast to $79 a barrel, and its projection for next year's average oil price to $74.75 a barrel, on the "assumption" of a drop in global crude demand.
Meanwhile, as other Opec members mulled throttling back crude production, Nigeria's National Petroleum Company said the West African oil exporter's production was gradually climbing back to pre-2006 levels and was expected to reach 2.4 million bpd by the end of this year, up from 2.2 million bpd last month. Nigeria's oil output has been hurt by internal armed conflict that damaged production facilities.
The development will make the dilemma faced by Saudi Arabia, the Opec kingpin, on how much and even whether to curtail the kingdom's oil output all the more critical for international markets. @Email:firstname.lastname@example.org