The Organization of the Petroleum Exporting Countries (OPEC) is putting forth bearish signals on the world’s economy. The 12-member organization lowered its forecast for growth in global oil demand this year and warned of a continued slowdown in 2013.

World Oil Demand

OPEC sees growth in world oil demand falling to 800,000 BOPD for 2012, 100,000 barrels a day lower than its previous projection. This leaves world crude oil demand averaging approximately 88.81 MMBOPD for the full year 2012. Although this is a downward revision, production expectations still represent an increase of 0.77 MMBOPD from 2011 levels. For 2012, demand for OPEC crude oil is currently forecasted at 30.14 MMBOPD representing a slight decrease of approximately 0.1 MMBOPD from 2011 OPEC crude oil demand levels. Thus, demand for OPEC crude represents 34% of total world crude oil demand.

On October 31, a Reuter’s survey reported supply from OPEC averaged 31.15 MMBOPD during October 2012, up from 31.09 MMBOPD in September.

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Economic Influence

According to OPEC’s October Monthly Oil Market Report, world economic growth for 2012 is expected to hit approximately 3.1%, revised downward from 3.3%. The revision reflects a slowing growth rate from the beginning of the year. Continued economic uncertainty in the U.S., EU, and China is having a direct impact on energy consumption. In addition, slower industrial production worldwide has reduced the global demand for oil. The transportation sector contributed to a slowing of oil use due to a slowing economy and higher retail prices. Looking at the upcoming winter months, we believe weather and economic health will have an impact on world oil demand as we move closer to the end of the year.

What 2013 Looks Like

OPEC believes world crude oil demand during 2013 will average 89.66 MMBOPD, representing an increase of 0.8 MMBOPD from 2012 levels. During 2013, demand for OPEC crude is forecast to average 29.8 MMBOPD, a decline of 0.3 MMBOPD from the current year. This represents an upward adjustment of 0.2 MMBOPD from the September report. Based on these reports, OAG360 notes that demand for OPEC crude oil represents 33% of the world’s total crude oil demand.

“Turbulence in the world economy means demand in 2013 could well fall short of the forecast,” the OPEC 2012 October Monthly report said.

OPEC believes U.S. production for 2012 should average about 9.74 MMBOPD. If production for Saudi Arabia remains steady for the fourth quarter, average production should be around 9.86 MMBOPD. Looking at the OPEC’s projection for the U.S. in 2013, average production is likely to increase to 10.10 MMBOPD based on anticipated growth in the Eagle Ford, Permian and Bakken. This sets up for an interesting scenario with the U.S. catching up to Saudi Arabia in terms of crude oil production. Minimal growth of 0.57 MMBOPD from 2011 and a forecast for decreased OPEC production in 2013 makes it hard to imagine any large growth in production from Saudi Arabia in 2013. Anticipated growing supply from non-OPEC countries makes the U.S. catching Saudi Arabia next year a very real possibility.

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