Have no doubt about it — U.S., European, and Chinese stimulus was great news for OPEC in 2009 since it kept oil demand up without using OPEC’s money.
Thus tightening, both in the U.S. and China particularly, is a huge challenge for oil prices in 2010.
OPEC’s February market report makes it clear that the cartel is very concerned U.S. oil demand forecasts could miss expectations as the U.S. government begins tightening.
OPEC: In the major OECD countries, the recovery is far from self-sustaining and remains largely dependent on continued government support.
Uncertainty about the pace of the US economic recovery is creating some downward risk on the country’s oil demand this year. Cold weather managed to increase demand for heating oil and fuel oil, but declining demand for diesel and gasoline resulted in negative growth in January. The 1% or around 180 tb/d forecast growth for US oil demand for the whole year may not material ise. Given several obstacles demand growth could be as little as 100 tb/d for the total year (see Graph 2). The main risk remains the recovery path of the US economy which in turn is dependent on the degree of government fiscal and monetary support and its success in lowering the unemployment rate, a main determinant of consumer sentiment and private consumption.
If the USA only achieves OPEC’s ‘Low’ demand growth scenario (shown in the upper right corner chart), this would equate to 0.08 million barrels per day (mb/d) of lower growth. It sounds small at first, but that’s equal to Latin America’s entire 2010 demand growth:
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Furthermore, China is also at risk of missing OPEC expectations due to its own version of monetary tightening. The country’s 2009 economic growth was driven by an enormous stimulus package. Yet in 2010 the Chinese government is focused on slowing things down:
In 2010, oil demand is forecast to grow by 4.5%, or 0.37 mb/d. Nevertheless, the government is keen to curb the nation energy use, an aim incorporated in its current five year plan. However, there is some uncertainty about oil demand growth. Slower-than-expected growth in the global economy could impact China’s exports and industrial production, dampening the need for oil. Internal measures to slow down the economy may also affect oil demand.
Thus OPEC is getting anxious, especially since production quota compliance amongst its own members fell to just 58% in December (countries need cash during hard times), and world oil supply is surging:
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(All charts and excerpts from OPEC’s February 2010 report)