Demand for Crude Oil to Rise Again in 2012

In its July Market Report, OPEC predicts that demand for crude oil will rise by 1.32 million barrels/day in 2012. The International Energy Agency is predicting an increase of 1.5 million barrels/day. Either way, production is going to have a hard time keeping up with demand.  OPEC expects demand in 2011 for its own crude production to be 30 million barrels/day, up 400,000 barrels/day from 2010 production. In 2012, OPEC forecasts a demand increase for its crude to 30.3 million barrels/day.

For 2012, OPEC forecasts supply from non-OPEC producers will increase by 680,000 barrels/day to a total of 53.57 million barrels/day. The cartel notes that this level of production is “associated with a very high level of risk” due to political concerns and technological advances.

On its own behalf, OPEC produced 29.60 million barrels/day of crude oil in June. The cartel expects to average 5.29 million barrels/day in non-conventional oils and natural gas liquids, rising to 5.65 million barrels/day in 2012.

Total supply in June, according to OPEC, averaged 87.82 million barrels/day. The IEA estimate for total oil demand in 2012 is 91 million barrels/day.

There is not a chance that crude production will make up the nearly 3.2 million barrel/day increase in demand. If there is any good news in all these numbers it is that OPEC was able to increase production in June by about 500,000 barrels/day.

The IEA is also pushing back against critics of its 60 million barrel release from member countries’ strategic reserves. The agency claims that the release has narrowed the gap between prices for light, sweet crude and heavier grades. The disruption of Libyan supplies of light, sweet crude increased the price spread, forcing prices of the lighter crudes considerably higher.

The IEA also said it might consider authorizing a second release from strategic reserves. That weighed on crude prices earlier today, but comments by Federal Reserve chairman Ben Bernanke that the central bank is ready to launch another round of quantitative easing if that should be needed has boosted equities and commodities prices before noon. There’s nothing like the prospect of more free money to loosen traders wallets.

Demand growth for crude in 2012 is nearly certain to outpace supply growth. That’s the main takeaway. If the US kicks off another round of easing, the gap could get even wider. Either way prices at the pump are surely headed back to more than $4/gallon. And higher would not be surprising.

Paul Ausick