Opec has sharply reduced its forecast for world oil demand, possibly setting the stage for further supply cuts when it meets next month. In its latest monthly report, the oil exporters' group projected a 580,000 barrel per day (bpd) drop in global demand, more than triple the 180,000bpd decline it predicted a month ago. "World oil demand continues its steep decline from last year and is expected to follow this strong negative pattern at least for the first three quarters of the year," it said.
Opec further forecast that demand for its crude oil would fall by 1.7 millionbpd this year to average 29.2mbpd, a steeper drop than the 1.4m bpddecline it predicted last month. But the Opec economists who prepared the report estimated that the group pumped only 28.7mbpd last month, after its December announcement of a record 2.2mbpd reduction in output targets. Total Opec production fell by almost 1mbpd in January, the report said.
On Thursday, the Algerian oil minister, Chakib Khelil, said Opec's compliance with the 4.2m bpd of cuts the group has announced since last September - representing 5 per cent of its output that month - would reach 100 per cent before the next Opec meeting on March 15. "Right now, we have very good compliance," Mr Khelil said. "We have 85 per cent, which is unusual for compliance." Mr Khelil insisted there was a 50 per cent chance that Opec would decide on a further production cut in March, despite a drop in New York crude prices to below $34 a barrel on Thursday.
Last month's output still remained ahead of Opec's implied 24.8mbpd target. Oil prices have fallen by more than 75 per cent since reaching a record $147.27 a barrel in July, and are now near the four-year low they plumbed in December. Mohammed bin Dha'en al Hamili, the UAE Minister of Energy, said last week that prices were at half the level needed to stimulate the investment required to sustain long-term oil supplies.
One of Opec's biggest concerns is the steep build-up in oil stocks that has resulted from slumping demand for crude throughout the industrialised world. "The high and growing stock levels - particularly for crude oil - are likely to continue to disrupt the overall stability of the market," Opec said in the report. "Their impact will become even more pronounced with the onset of low seasonal demand, as well as the upcoming refinery maintenance period."
The group said US commercial oil stocks climbed by 27m barrels last month to more than 1 billion barrels, in the steepest monthly increase in nearly eight years. Opec said it did not expect a recent rebound in demand for transport fuel in North America, due to sharply lower petrol prices, to overcome the "huge decline" in industrial fuel use seen in the region. The group called for "broad co-operation across the oil industry" to clear surplus crude supplies and prevent a further plunge in prices.
Another big question, it said, was whether a drive by the new US administration of Barack Obama to improve fuel economy standards in US vehicles by 40 per cent would cause a permanent drop in North American petrol demand. Mr Khelil said he had recently discussed policy issues including how to improve energy efficiency with the new US energy secretary, Steven Chu. Opec projected a 600,000bpd drop in North American oil demand this year, equal to its forecast decline in global oil demand, implying that slowing demand growth from developing countries would only offset declines in Europe and developed Asia Pacific economies.
"US consumption is still experiencing a major decline which started early last year," it said. Opec's latest oil demand forecast followed an even more bearish projection last week by the International Energy Agency, which predicted global oil demand would fall this year by 980,000bpd. @Email:firstname.lastname@example.org