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 continued to fall in October. The financial crisis dominated market sentiment as the economic slowdown dented petroleum demand growth. Uncertainty about bailout plans in the US while the turmoil spread worldwide signaled fears of a looming recession. Losses on the equity market, despite a move by central banks around the world to safeguard the financial system, highlighted the deteriorating economic sentiment. This was reflected in the equity markets which exhibited sharp volatility, mostly on the downside. In October, the Basket averaged $69.16/b for a drop of $27.69 or nearly 29%, the largest monthly drop ever recorded, to a level last seen in August 2007. The sharp downward trend continued in November, with the price at $49.09/b on 14 November.

❏ The forecast for the global economy in 2009 has been revised down 0.4 pp to 2.9% due to the rapidly worsening conditions in the real economy. The Euro-zone entered into technical recession in 3Q08 for the first time since the introduction of the single currency. The US economy contracted by 0.3% in 3Q08 and is expected to exhibit negative growth in the current quarter and possibly beyond. Unemployment in the US rose sharply to 6.5% with more than half a million jobs shed in the last two months alone. Central banks across the globe have moved to lower interest rates.

Although money markets have eased, confidence in equity markets in October evaporated and share prices fell sharply. As spillover effects to emerging markets become stronger and commodity prices continue to fall, more countries are being affected. Attention is now turning to the need for fiscal stimulus measures to lessen the depth and reduce the duration of the economic turndown. Coordinated measures to address the crisis were considered in the Washington G-20 Summit. Following downward revisions, US growth in 2009 is now forecast at 0.3%, Euro-zone growth at 0.2% and Japanese growth is expected to turn negative at minus 0.2%. Developing Countries are now expected to grow at 4.9% while China's growth forecast now stands at 8.8% in 2009.

❏ The fall in prices might help fourth-quarter oil demand to some degree but is not anticipated to overcome the affects of the economic downturn. Fourth-quarter oil demand is forecast to show growth of only 0.4 mb/d y-o-y.

In addition to the strong decline in transport fuel, oil consumption in the petrochemical industry is also falling sharply. Due to the drop in oil demand in the OECD, world oil demand in 2008 was revised down by 0.26 mb/d to show minor growth of 0.28 mb/d. In 2009, oil demand will increase mainly in the Middle East, Asia, and China which is estimated at 820 tb/d or 74% of the total Non-OECD forecast oil demand growth next year. OECD countries are expected to experience a decline in oil demand which is likely to pull total world oil demand growth down by more than 0.5 mb/d in 2009, representing a revision of 0.2 mb/d.

❏ Non-OPEC oil supply is expected to average 49.7 mb/d in 2008, representing an increase of 0.2 mb/d over the previous year and a downward revision of 92 tb/d from last month's assessment. Main contributors to the revision are the USA and FSU countries. In 2009, non-OPEC oil supply is expected to average 50.4 mb/d, representing an increase of 0.7 mb/d versus the current year and a downward revision of 220 tb/d from the last assessment as companies have cut capital expenditures in response to the financial crisis. In October, OPEC crude production averaged 32.0 mb/d according to secondary sources, representing a drop of 0.13 mb/d from the previous month.

❏ Upon completion of refinery maintenance and resumption of normal operation by refineries, particularly in the US, after major temporarily shutdown at the hurricanes in the US Gulf, product market sentiment changed significantly. This combined with falling product demand due to further deterioration in world economic growth has exerted downward pressure on product prices and refining economics. Due to the disappointing outlook for world economy and lower demand projections for various barrel components, the current bearish sentiment of the product markets may continue in the coming months, putting more pressure on both crude and product prices. While the cold weather in the Atlantic Basin may provide some support for crude prices, it would not be enough to switch the bearish market sentiment.

❏ OPEC spot fixtures averaged 12.09 mb/d in October, 2.4% higher than in the previous month, supported by higher OPEC fixtures outside the Middle East. OPEC sailings were once again steady, averaging 23.0 mb/d. Arrivals in the US increased by a substantial 15% last month in line with the sharp 1.59 mb/d surge in US crude imports compared to September. Spot freight rates for crude oil tankers declined by 12% in October impacted by the overall pessimistic economic outlook and the steep falling of the equity markets. Product freight rates were also lower in October with the trans-Atlantic route showing the largest drop.

❏ US commercial oil inventories recovered from the low levels seen in September after having lost 44 mb on the back of hurricanes to increase by 39 mb in October. Inventories now stand slightly below 1,000 mb, the second-highest level so far this year. Crude oil stocks rose 11.6 mb to hit 312 mb, the highest level since last April, while product inventories jumped 27 mb. In terms of demand, US commercial oil inventories are very comfortable with all the main components above the five-year average. In EU-15 plus Norway, total oil inventories increased a further 1.7 mb to approach 1,120 mb, which corresponds to the five-year average. In Japan, commercial oil stocks rose in September for the third consecutive month adding almost 8 mb to approach 200 mb, the highest level in more than a year.

❏ The demand for OPEC crude in 2008 is expected to average 31.8 mb/d, a decline of 430 tb/d from the previous year. In 2009, the demand for OPEC crude is expected to average 30.9 mb/d, a drop of 910 tb/d.

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Feature Article:
Demand destruction dominates oil market
Oil market highlights
Feature article
Statements and press releases
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.

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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