In the May version of OPEC’s monthly Oil Market Report, the cartel keeps its previously forecast global demand total for 2012 at just under 89 million barrels/day. Demand is growing in Japan where the shutdown of the country’s nuclear power plants is increasing the need for oil. US demand is also higher, according to OPEC, which attributes the increase to “stabilization of the US economy.”
Non-OPEC global supply is expected to grow by 600,000 barrels/day this year, primarily due to increased production in the US. The report, which never includes data on OPEC supply that is generated by the cartel itself, cites non-OPEC sources as giving a total OPEC supply of 31.62 million barrels/day in April, up 320,000 barrels/day from March. Non-OPEC supply in 2012 is forecast at just over 53 million barrels/day. The difference between global demand of 89 million barrels/day and global supply of 84.62 million barrels/day is more than accommodated by an estimated 5.67 million barrels/day of other liquids such as NGLs and other non-conventional oils.
The report also note that the oil market has moved back into contango, a market state in which futures prices are higher than the current spot price. That is only true of physical barrels of WTI crude on the Nymex; Brent crude remains in backwardation on ICE, a condition where the current spot price is higher than the futures price. For example, the ICE Brent contract for Jun 2012 currently sits at $112.87/barrel and the same contract for June 2013 costs $107.41/barrel.
Prices have moderated at US gas stations in the last month or so, but the contango in the WTI market prevents the differential between WTI and Brent from closing from the top price (for Brent) toward the lower price (for WTI). That means that lower demand in the US is more than made up for by higher demand elsewhere, especially India and Asia. That keeps Brent prices higher relative to WTI and higher now than in the future. As long as that is the case, US pump prices will not fall very fast nor very far.