Saudi Arabia, the largest member of OPEC, based on crude production, says it sees no drop in the demand for global oil. That runs against forecasts for demand made by most economists and organizations, including the International Energy Agency. The comments by the Saudis either mask their true belief, or they are based on assumptions most of the rest of the world does not understand.
Saudi Oil Minister Ali al-Naimi said late last week when asked about demand,“I don’t think it will decline because, even with the global economic situation, the expectation for 2011 is still 1 million barrels more than 2010 and expectations for 2012, it is between 1.1 million barrels and 1.3 million barrels.” Those assumptions may have been true six months ago when it appeared that the global economy would emerge from the deep recession that ran from 2007 through early 2010. Those assumptions do not hold any longer.
The Center for Global Energy Studies said last month that China’s oil demand would drop to the levels of mid-2010. A fall-off in China’s PMI confirms this prediction. The drop is expected to continue as China’s trade partners in the U.S., Japan, UK and Europe fall back into recessionlike circumstances.
The oil demand in the U.S., which is the largest net importer of oil after China, will be lessened by the economic trouble with both consumers and businesses. Earnings are expected to fall for many companies as they report third-quarter numbers and forecast the current quarter. Demand from petrochemicals, gas and diesel will drop if they have not already. This would cause refinery output to slow.
The only data that support the Saudi claim is oil prices. WTI crude has fallen from over $100 to just above $80 over the past three months. That may not be enough to spark demand in a period when both consumers and businesses have become extremely conservative. And that makes the Saudi forecasts all the more improbable.
Douglas A. McIntyre