The Organization of Petroleum Exporting Countries (OPEC) released its May Oil Market Report this morning. The cartel did not materially change its forecast for global demand growth of 800,000 barrels a day to a total of 89.7 million barrels a day.
But the cartel did revise downward its demand projections for the first quarter based on actual data. In its April report, OPEC forecast global demand of 89.7 million barrels a day. The May report cuts that to 89 million barrels a day in the first quarter. But OPEC says:
The latter half of the year will see much higher oil use, reaching 90.1 mb/d and 90.9 mb/d in the third and fourth quarters, respectively. For the whole year, world oil demand growth is expected to increase by 0.8 mb/d to average 89.7 mb/d, unchanged from the previous assessment.
And that is the way the world goes around.
There is virtually no chance that OPEC’s forecast will hold up for the rest of this year. By its own admission, the projected 400,000 barrels a day of increased demand from China is quite shaky. And that is half the total projected increase in demand for 2013. Demand in the Middle East is forecast to grow by 300,000 barrels a day, but lower demand in Europe and Asia Pacific more than offset Middle Eastern demand.
Non-OPEC crude oil supply is expected to rise by an average of 980,000 barrels a day in 2013, reflecting a rise of 20,000 barrels a day from last month’s report to a total of 53.96 million barrels a day.
OPEC nations are forecast to produce an estimated 29.84 million barrels a day. In the first quarter of 2013, OPEC nations produced 30.22 million barrels a day, 38,000 more barrels per day than were demanded.
For 2013, the forecast for OPEC production has been cut by 400,000 barrels a day, and the cartel is still overproducing. Either OPEC will need to revise its quota (currently set at 30 million barrels a day) or one of the members will have to take one for the team. Saudi Arabia is the usual volunteer to raise or lower production, but we have noted before that it is in the Saudis’ best interests not to cut production but to let prices for OPEC crude fall.
Whatever OPEC’s strategy, it will have little impact on crude oil prices in the United States. Crude oil prices will continue to decline in the U.S. as the price of Brent falls and closes in on West Texas Intermediate (WTI) crude prices. There is nothing OPEC can do to change that.