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 continued their bearish trend with the weak economic outlook foreseen to dent oil demand growth. The strengthening of the US dollar added to the downward momentum. Financial market turmoil strengthened the gloomy sentiment dominating the global market. In monthly terms, the Basket fell $15.56/b or nearly 14% in September to stand at an eight-month low of $96.85/b.

The Basket continued to trend sharply lower in October as the evolving crisis in the financial sector indicated an increasingly weaker outlook for the world economy and hence demand growth. The Basket reached a twelve-month low of $72/b on 13 October, representing a decline of almost $69/b in little more than three months.

❏ The world economy is now estimated to grow 3.8% this year, 0.1 percentage points (pp) below last month's estimate. The forecast for 2009 has been revised down 0.4pp to 3.3% due to downward revisions across the board, as the fallout from the financial crisis impacts the real economy. In recent days the huge rescue packages, amounting to an estimated pledge of €1.9 trillion, announced by EU members have reinforced the effect of the already agreed US $700 billion package. The combined impact of the declared rescue plans appear to have finally succeeded in halting the downward spiral in equity markets, but it remains to be seen if this positive response will last once the details of the individual countries' plans become clearer and the implementation process begins.

Time is of the essence since already weakening economies in the OECD are expected to face recession, the depth and duration of which may be contained provided the banking sector can be brought to function normally again in the near future. Within the OECD, US growth forecast for 2009 was reduced by 0.7pp to 0.6%, Euro-zone growth by 0.4pp to 0.6% and Japanese growth trimmed to 0.3%, a downward revision of 0.7pp from last month. Growth forecasts for Developing Countries and China are also 0.2pp down next year and now stand at 5.3% and 9.0% respectively.

❏ Declining US oil consumption continued to reduce OECD oil demand by more than 1.8% in 2008. Factors affecting world oil demand such as the slowing economy, high retail prices and hurricanes led to a decline of more than 1.0 mb/d in total OECD consumption. Non-OECD oil demand growth increased 1.2 mb/d y-o-y in September. Most of this is attributed to Asian and Middle Eastern oil demand. Total world oil demand growth for 2008 has been reduced to half of the initial forecast to stand now at 0.6 mb/d.

In 2009, reduced economic growth outlook is expected to continue impacting oil demand. Hence, oil demand in the USA will be lower than initially expected, at least in the first half of the year. The likely spillover to other economies will affect oil demand elsewhere to some degree. As a result, world oil demand growth for next year has been revised down by 0.1 mb/d to show a growth of 0.8 mb/d. OECD oil demand is expected to shrink by 0.4 mb/d next year; however, non-OECD countries?oil demand growth is estimated to reach 1.1 mb/d with most of the growth coming from China, the Middle East, and India.

❏ Non-OPEC supply growth in 2008 has been revised down to stand at 0.3 mb/d over the previous year. The adjustments were made to accommodate the impact of hurricanes on US production, reduced oil output from Azerbaijan following a gas leak, and other factors. For 2009, non-OPEC supply growth experienced an upward revision to stand at around 1.0 mb/d. This was mainly due to revisions made to the current year.

OPEC NGLs and non-conventional oils now stand at 4.7 mb/d in 2008 and 5.4 mb/d in 2009. In September, OPEC crude oil production averaged 32.2 mb/d, representing a drop of around 309 tb/d from the previous month, as production from Iraq, Saudi Arabia and Angola saw significant declines.

❏ Product market sentiment improved temporarily after hurricanes Gustav and Ike, lifting product prices in both the physical and futures markets. These developments in product prices along with falling crude prices due to the further deterioration of financial markets have also lifted refining economics across the globe.

However, the recent bullish developments in product markets are not expected to persist, as refineries on the US Gulf Coast have returned to normal operation over the last two weeks and the risk of product shortages has eased significantly. However, with the approach of the winter season, the tight distillate situation may provide some support for crude prices, but it may not be enough to overshadow other bearish factors in the market.

❏ OPEC spot fixtures averaged 12.3 mb/d in September, representing a drop of 3% from the previous month, supported by lower OPEC fixtures outside the Middle East. OPEC sailings remained steady, averaging 23.3 mb/d. Arrivals in the US declined last month in line with the sharp 1.4 mb/d drop in crude imports. Spot freight rates for crude oil tankers showed a clear recovery from the weaker rates the month before, mainly due to high hurricane activity and the strong Middle East market. Product tanker freight rates rose in September with a more active West of Suez market.

❏ Hurricanes Gustav and Ike pushed US commercial oil stocks below the bottom of the five-year range for the first time this year in September. Inventories lost 24 mb to stand at 960 mb, with products contributing 23 mb to the draw as refineries were the most affected by the hurricanes. Crude stocks stood roughly at the five-year average of 300 mb. However, total US inventories rose sharply in the week ending 3 October as imports increased following the recovery in port infrastructure.

Despite a drop in September, stocks remained comfortable in terms of days of forward cover as demand has weakened. In EU-15 plus Norway, total oil inventories fell 4.5 mb to stand at the five-year average. Crude oil remained comfortable after a build of more than 5 mb. Japan's commercial oil stocks, particularly products, continued the upward trend in August. According to preliminary data, total stocks moved above 200 mb in late September for the first time since January 2007.

❏ The demand for OPEC crude in 2008 is expected to average 32.0 mb/d, a decline of 260 tb/d from the previous year. In 2009, the demand for OPEC crude is expected to average 31.1 mb/d, a decline of 870 tb/d.

Download OPEC Monthly Oil Market Report, October 2008

PDF format, 907KB, 65Pages.

Feature Article:
Financial turmoil impacting market 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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