It hasn't been the best start to the summer in these United States. We've seen the untimely deaths of several celebrities. The political scene seems to average an embarrassing confession per week. And the weather has been too rainy in the East and too hot in the West.
Well, on Wednesday there was some good news. And look -- it's coming from the least likely of all sources: OPEC.
OPEC, producer of about 40 percent of the world's oil, now expects global demand in 2013 to be less than last year's level, the cartel announced Wednesday in its World Oil Outlook.
The cartel now expects global oil demand in 2013 to total 87.9 million barrels per day – 5.7 million bpd lower than its previous forecast. As a result, OPEC said it will need to pump essentially the same amount of oil in 2013, or 31.2 million bpd, as it does today, 31 million bpd, to help meet the world's demand for petroleum.
"There is a growing perception that the economic slowdown will be U-shaped, that is the recovery will gather momentum only gradually," OPEC said in the report. It added that it sees demand "rising slowly over the medium term, returning back to 2008 levels by around 2013."
Oil has been trending lower -- down $12, or about 13 percent, in five days -- on renewed concern that the U.S. and global recoveries will not start as expected in the third and fourth quarters, and that the recovery will be weak initially. The price had fallen $2.28, to $60.65 per barrel, at midday on Wednesday.
OPEC says the lower price will result in a 30 percent reduction in 2009–2013 investment in new production and capacity, to $115 billion, compared with an earlier forecast of $165 billion. Nevertheless, OPEC says spare capacity in cartel-member states will be "comfortable," at more than 6 million bpd in 2013.
Shocker or head-fake?
"The new global oil demand forecast by OPEC is a bit of a shocker, because it would imply much weaker demand conditions for oil in the years ahead," says economist Richard Felson. But investors should not use the World Oil Outlook as their sole source for global oil consumption trends, cautions Felson, who adds that he hasn't reviewed the OPEC report in detail: "I'll need to cross reference OPEC's data with research from the International Energy Agency IEA and other sources."
The IEA expects 2009 global oil demand to be 83.3 million bpd, 900,000 barrels high than OPEC's 82.4 million bpd forecast.
Felson added that OPEC's new forecast "contradicts the International Monetary Fund's upwardly revised outlook for stronger growth in 2010." The IMF now expects the global economy to grow 2.5 percent in 2010, compared to a 1.9 percent forecast in April.
And investors should also pay close attention to global demand forecasts for 2009–2013 from three major integrated oil companies -- Exxon-Mobil (XOM), BP (BP), and Conoco-Phillips (COP) -- when they report second-quarter earnings in the weeks ahead. BP and Conoco report on July 29; Exxon, July 30.
"My experience has been that OPEC tends to underestimate global demand slightly," Felson said. "If Exxon, BP, and Conoco are all also forecasting lower demand, particularly for emerging markets, then you know the bloom is off the oil-demand rose, at least for the next few years."
Much of the lower-than-previously-forecast global oil demand stems from lower Organization for Economic Cooperation and Development demand growth – with OPEC forecasting it to drop by 1 percent in 2010, to 45.5 million bpd, and then remain essentially flat through 2013.
Flat OECD demand for five years would reflect both reduced commercial activity as a result of the current pronounced recession and increased conservation and energy efficiency. Still, it's important to await consumption data by other oil organizations before concluding that oil demand is likely to increase at a slower pace in the immediate years ahead.
OPEC: World will need less oil in 2013 than last year