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Wednesday, December 13, 2017

Call on OPEC oil down for 2q’04

Global oil demand in the second quarter of 2004 is projected by Oil Market Intelligence to be some 77.7 million barrels per day (mbd), 3 mbd lower than demand in December. The call on OPEC’s oil (including stock changes) in the 2nd quarter is projected by the IEA to be 23.3 mbd, which points towards the lowest OPEC production in more than 10 years. With crude prices well above OPEC's $22-$28 per barrel target range, in part due to the still very low inventories in the US and other major consuming countries, the producer group probably does not have much choice but to maintain the current 24.5 mbd day ceiling for a while longer. But ultimately, if OPEC fails to reduce production from today’s levels, oil prices may plunge.

The Saudi Oil Minister Ali Naimi tried to calm the market at the World Economic Forum in Davos last month, saying that current price levels were too high. At OPEC's last meeting in December last year his message was that a weak dollar was the reason for allowing the OPEC basket to rise to well above $28/bbl.

The projected dramatic fall in demand for OPEC oil is alarming for the producer group.

It is also important for the tanker market, since OPEC producers such as Algeria and Nigeria have actually been increasing oil production, whereas Venezuelan production has already been showing a downward trend.

Developments in the US will be important for the export of OPEC crude. US commercial stocks are still low (see graph above), 1% below the level at end January 2003 when there was a strike in Venezuela, and 8.4% below the average level for the last 3 years. Strategic stocks (SPR) were, however, at the highest level ever as of end January this year (7% above the level end January 2003 and 10.6% above average level for the last 3 years). US oil imports in January were almost 9.9 mbd - the highest ever - 0.3 mbd above the January 2003 level and 2 mbd above the January 2000 level, according to the weekly data from the US EIA/DOE.