The OPEC Monthly Oil Market Report covers major issues affecting the world oil market and provides an outlook for crude oil market developments for the coming year. The report provides a detailed analysis of key developments impacting oil market trends in world oil demand, supply as well as the oil market balance.

Oil Market Highlights:

❏ The OPEC Reference Basket rose $2.89/b or 2% in July to set a new monthly high of $131.22/b. In daily terms, the Basket jumped sharply higher in the first days of the month to peaking at $140.73 on 4 July with US dollar weakness and geopolitical tensions dominated the upward trend. However, the sentiment eased over the course of the month with concern over slower demand growth amid weak economy signals helping the Basket to fall $13.55 or almost 10% lower. In August, the weaker economic outlook indicating lower demand as well as a recovery in the US dollar and high OPEC oil exports helped calm the market. Although the uptrend revived following recent supply disruptions in the Caucasus, the momentum was short-lived as speculative funds continued to exit the crude oil futures market. This helped the Basket to plunge to a three-month low of $109/b on 12 August.

❏ The world economy is seen to grow at 3.9% this year, 0.1% down on last month's forecast and around 1.0% lower than in 2007. For 2009, the forecast of 3.8% is also 0.1% lower than last month's, mainly due to downward revisions made to all major OECD regions. In contrast, Developing Countries' growth in 2009 is unchanged at 5.6%. For 2009, India's growth was revised up 0.2 pp to 7.7% while China's is unchanged at 9.2%. US economic expansion next year is now projected at 1.3%, down 0.3pp from the previous month, but still higher than the prospect of 1.1% growth in Japan and the Euro-zone.

The dollar strengthened on the perception that the rest of the world -mainly other OECD regions -were facing increasing headwinds and were slowing down fast, while the US is seen to have been more proactive in resolving economic and financial sector problems. Japan is on the brink of recession after 2Q08 real GDP fell at an annualized rate of 2.4%.

Eurozone growth was also negative in 2Q08 falling at around 0.8% annualized rate. In contrast, US grew at 1.9% rate in 2Q08, buoyed by the fiscal stimulus. However, the US outlook for the 2H08 has worsened, with no bottom yet in sight for the housing sector.

❏ US oil demand has been badly hurt this summer by slowing economy and high oil prices. Transport and industrial fuels declined the most, pushing the country's total oil demand down by 3.8% or 0.8 mb/d in the first seven months. Gasoline, the engine of the US oil demand, has been on the decline since the beginning of the year.

Summer strong oil demand growth in China, Middle East and Asia has not been enough to offset the huge decline in OECD oil demand in the second quarter. World oil demand in 2008 is forecast to grow by 1.0 mb/d with a slight 30 tb/d revision from the previous forecast. In 2009, world oil demand is forecast to grow by 0.9 mb/d, unchanged from the previous forecast and 0.1 mb/d lower than demand growth in 2008. With growth expected at 1.2 mb/d, non-OECD countries will account for all of the world oil demand growth next year. Due to a major slowdown in transport and industrial fuel consumption not only North America but also in OECD Europe and Pacific, oil demand growth will be on the decline in 2009 which will make the world oil demand growth the lowest since 2002.

❏ Non-OPEC oil supply in 2008 is expected to increase 0.58 mb/d over the previous year, broadly unchanged from the previous forecast. Upward revisions to supply from the USA, Mexico, UK, and China offset downward adjustments to Canada, Norway, Australia, India, Malaysia, Vietnam, Brazil, Russia, Kazakhstan, and Azerbaijan. In July, total OPEC crude oil output averaged 32.6 mb/d, representing a gain of 235,800 b/d over the previous month due to higher production from Saudi Arabia, Iraq, Nigeria, Kuwait and the UAE. Preliminary global oil supply figures ?combining non-OPEC supply, OPEC NGLs & non-conventional oils and OPEC production ?for July indicate that world oil supply rose by 0.6 mb/d in July over the previous month. In 2009, non-OPEC oil supply is expected to grow by 0.9 mb/d steady from last month.

❏ Deteriorating demand in the OECD countries, particularly in the US along with costly crude oil significantly undermined refining economics across the world in July. The current sentiments of product market may exacerbate further in the next months with the approaching end of driving season and product market fundamentals may ease further. This weaker trend is likely to be enhanced by new refinery capacities coming onstream in coming months. Looking ahead, the only major wild card for the product markets would be possible refinery outages due to hurricane activity in the Gulf of Mexico. Additionally, the recent sharp fall in crude oil prices may help to improve refining economics and to cap discretionary cuts by refiners.

❏ OPEC spot fixtures increased by less than 1% in July over the previous month to average 14.0 mb/d supported by a 3% increase in spot fixtures in the Middle East. OPEC sailings were steady averaging 23.43 mb/d. Arrivals in the US rose last month as imports increased marginally. Spot freight rates for crude oil tankers were firm mainly due to the very strong Suezmax market, while product tanker freight rates were weaker on higher tonnage availability with the closure of the gasoline arbitrage to the US.

❏ US commercial oil stocks continued their upward trend in July, increasing more than 13 mb to reach 988 mb but remained 28 mb below the five-year average. The build was driven by distillates which rose for the third consecutive month to stand above 133 mb. Similarly, gasoline stocks remained comfortably above the top of the five-year range. Crude oil stocks inched up slightly but remained 16 mb below the five-year average. EU-15 plus Norway total oil inventories remained comfortable in July after a build of 3.6 mb, due to a jump in crude oil stocks and despite a decline in products. In Japan commercial oil stocks fell 6.7 mb in June, widening the deficit with the five-year average to 10 mb. Crude oil stocks were the main contributor to the decline but preliminary data show a surge of around 14 mb in total oil stocks in July.

❏ The demand for OPEC crude in 2008 is estimated to average 32.1 mb/d, a decline of 0.1 mb/d over the previous year. In 2009, the demand for OPEC crude is expected to average 31.3 mb/d or 0.7 mb/d lower than in 2008.

Download OPEC Monthly Oil Market Report, August 2008

PDF format, 805KB, 61Pages.

Feature Article:
The oil market moves towards fundamentals
Oil market highlights
Feature article
Crude oil price movements
The oil futures market
Commodity markets
Highlights of the world economy
World oil demand
World oil supply
Product markets and refinery operations
The tanker market
Oil trade
Stock movements
Balance of supply and demand

Visit Organization of the Petroleum Exporting Countries (OPEC) Website

OPEC's mission is to coordinate and unify the petroleum policies of Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers and a fair return on capital to those investing in the petroleum industry.

OPEC is a permanent, intergovernmental organization, established in Baghdad, Iraq, 10–14 September 1960. The Organization now comprises 12 Members: Algeria, Angola, Indonesia, Islamic Republic of Iran, Iraq, Kuwait, Socialist People’s Libyan Arab Jamahiriya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

The Organization has its headquarters in Vienna, Austria. Its objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure a steady income to the producing countries; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the petroleum industry.

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