Oil demand doubts likely to prompt OPEC caution

By @ibtimes on

World oil demand forecasts are falling into a widening range, adding to uncertainty that may steer OPEC towards doing nothing when it meets on September 11, analysts said on Wednesday.

OPEC is under consumer pressure to pump more oil to lower prices near a record high. Complicating its task is whether the U.S. subprime mortgage crisis takes a wider economic toll as well as wide-ranging estimates of oil demand.

The International Energy Agency, adviser to industrialized countries, expects global oil demand growth of 2.2 million barrels per day, or 2.5 percent, in 2008, much more than OPEC's own forecast of 1.35 million bpd.

It's very strong demand growth when you have prices close to record highs, said Olivier Jakob, analyst at Petromatrix in Zug, Switzerland, of the IEA's forecast.

I think OPEC will look at their own numbers. For now they will keep a cautious attitude and see how the winter starts to go.

A year ago, the contrast between the Paris-based IEA and OPEC was far less marked. The IEA in August 2006 was predicting demand growth of 1.6 million bpd in 2007 while OPEC in the same month expected 1.3 million bpd.

Estimates for the fourth quarter -- when demand peaks and the focus of OPEC's deliberations on September 11 -- are also far apart. The IEA sees demand rising to 88.1 million bpd, while OPEC forecasts 87.08 million bpd.

For months, the IEA has been urging the Organization of Petroleum Exporting Countries to pump more oil. OPEC has rebuffed the call, saying crude oil supply and inventories are sufficient.

OPEC's last monthly report on the oil market before next month's meeting, issued on Tuesday, sounded a note of caution. While nudging up its demand forecast, it warned of growing downside risks.

The more bearish economic trend which has materialized in recent weeks could negatively impact demand growth in the second half of the year, economists at the group's Vienna headquarters said in the report.

PRODUCERS VERSUS CONSUMERS

Estimating world oil demand is something of an inexact science. Data is often delayed by many months or incomplete and projections can prove wide off the mark.

Many forecasters were caught out in 2004, when demand surged to its highest rate in decades led by economic growth in China, now the second-largest oil consumer.

The contrast in views on 2008 demand growth between OPEC and the IEA in part reflects their positions as the guardians of the interests of producers and consumers, analysts say.

Neither of these forecasts is completely daft. They are both trying to be conservative from their own perspectives, said Adam Sieminski of Deutsche Bank.

My feeling is the IEA is saying this is what we could get, and OPEC is looking at the reality of 2005 and 2006 and early 2007 and saying this is what we are really getting.

The rising price of oil in 2007 is worrying consumer countries. New York crude hit a record high of $78.77 on August 1 and is trading at around $73.

OPEC decided last year to lower output by 1.7 million bpd, or about six percent, and most members are still keeping a lid on supply according to estimates published by the group.

Adding to demand doubts, concern to avoid a price slide and a drop in the U.S. dollar that has eroded the purchasing power of oil sales may also prompt OPEC to err on the side of caution, say analysts.

As an OPEC member, my most important issue is price, the decline of the U.S. dollar and growing expenses in my country, said Paul Tossetti, director of market analysis at Washington-based PFC Energy.

So I would tend to be very conservative and not have an output increase.

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