OPEC Monthly Oil Market Report, January 2009

Tuesday, 20 January 2009

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
❏ Crude oil prices remained volatile as the weak global economy was seen undermining demand growth. However, reduced OPEC supply followed by the Conference decision in Oran for further production adjustments helped ease the downward slide in prices by the end of the month.

The fluctuation in the US dollar and outlook for lower prices prompted fund sell-offs for profit-taking The OPEC Reference Basket fell $11.16 or 22.4% in December to settle at $38.60/b, closing the month at $35.58. For the year, the Basket averaged $94.45/b. In the first half of January, ongoing conflicts in the Middle East and the Russia-Ukraine natural gas dispute revived some bullishness. The Basket stood at $41.31/b on 14 January to average $42.38/b, month-to-date.

❏ The forecast for the global economy in 2009 has been reduced by a further 0.2 percentage points to 1.3% as major OECD regions slip deeper into recession and economic activity in developing countries and China slows sharply. US labour market conditions deteriorated further in December, with the unemployment rate rising to a fifteen-year high of 7.2%. The Fed lowered its target for the federal funds rate to between zero and 0.25% and China cut its key one-year lending rate to 5.31%, the fifth reduction in three months. Chinese exports fell by 2.8% y-o-y, the second monthly drop. The World Bank is forecasting world trade volumes will drop 2.1% in 2009, the first decline in 25 years.

❏ World oil demand in 2008 remains broadly unchanged from the previous assessment, showing a decline of 0.1 mb/d, the first year of negative growth since 1983. The erosion in US oil consumption of 1.1 mb/d is a major factor behind the sharp decline in oil demand last year. In 2009, world oil demand is expected to see continued negative growth of 0.2 mb/d. The huge decline in the OECD consumption, particularly in the US, is expected to offset weaker growth in non-OECD, primarily from China, the Middle East, and Other Asia. Taken together, these countries are expected to growth by 0.6 mb/d, representing 78% of total non-OECD demand growth.

❏ Non-OPEC oil supply is estimated to increase 0.1 mb/d over the previous year and a downward revision of 50 tb/d versus the last assessment. The revisions to the full year estimate are concentrated around the fourth quarter. In 2009, non-OPEC oil supply is expected to increase 0.6 mb/d over last year, following a downward revision of 120 tb/d. The revision to the production outlook is principally due to lower expectations for Russia, Azerbaijan, Brazil, Mexico and Oman. In December, total OPEC crude production averaged 30.3 mb/d, a decrease of 0.8 mb/d over the previous month.

❏ A combination of a cold snap across the western Hemisphere with unseasonable cuts by refiners and lower cost of crude has provided support for product prices and refining economics over the last few weeks. The recent positive developments in product markets may not last long, as the recessionary outlook for the world economy may further undermine product demand and exert pressure on refining economics as soon as the impact of the cold winter weather eases.

❏ OPEC spot fixtures and sailings from OPEC countries fell in December from the previous month. US arrivals also fell on lower crude oil imports. Spot freight rates for crude oil tankers increased in December, impacted by the contango structure in crude markets which led to a good number of VLCCs being tied up in storage as well as stormy weather and port closures to the west of Suez.

❏ US commercial oil inventories increased a further 2 mb in December, resulting in a contra-seasonal build in the fourth quarter, with stocks at the highest level since September 2007. Inventories at the WTI delivery point of Cushing, Oklahoma, stood at a record level of 33 mb, approaching maximum storage capacity, impacting the price of US benchmark crude. European total oil stocks rose 1.7 mb to approach 1,120 mb, corresponding to the five year average, while commercial oil stocks in Japan fell in December but remained comfortable considering sluggish demand.

❏ The demand for OPEC crude in 2008 is estimated to average 30.8 mb/d, a decline of 0.5 mb/d from the previous year. In 2009, the demand for OPEC crude is expected to average 29.5 mb/d, a drop of 1.4 mb/d from the year earlier.

Oil Price Per Barrel

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Feature Article:
Oran decision: Firm resolve to restore market balance
Oil market highlights
Feature article
Press release
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

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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.

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