OPEC, the Organisation of Petroleum Exporting Countries, has slashed its oil consumption growth forecasts for the rest of 2008 and 2009. The cartel has also agreed to cut production by 1.5 million barrels a day (BOPD).
The reduction in forecast growth is principally because of an “excessive” easing of demand in the United States, where many analysts foresee a recession looming. The
Production cut, however, responds to a more urgent situation: an ‘unprecedented’ fall in prices and fears over short-term demand.
OPEC lowered its estimate for growth in demand for the rest of 2008 by 330,000 barrels per day to 550,000 BOPD, giving average total demand of about 86.5 million BOPD. For 2009, it cut its forecast by 100,000 BOPD to 800,000 BOPD, to put average total demand at 87.2 million barrels per day.
The group says that the drop in oil prices could lead to the cancellation of existing oil projects, resulting in a medium-term supply shortage. “Oil prices have witnessed a dramatic collapse, unprecedented in speed and magnitude.. .which may put at jeopardy many existing oil projects and lead to the cancellation or delay of others.”
The 1.5 million BOPD cut will bring the current production ceiling of 28.8 million BOPD to 27.3 million BOPD, from November 1, 2008. It is the first production cut made by OPEC in two years. The decision will be reviewed at its next scheduled meeting in Algeria on December 17, 2008.
OPEC has called on non-OPEC producers and exporters to restore prices to “reasonable levels”, saying it cannot be expected to bear the burden of restoring equilibrium to the market on its own. Weak US oil demand would bear down on the oil market “at least in the first half of 2009.”
It cited US figures to the effect that American motorists cut their driven mileage by 62.6 billion miles (100 billion km) in the first nine months of 2008. This reduction, in large part a response to higher oil prices, reduced cut total gasoline (petrol) consumption by 250 000 barrels per day.
Total US oil consumption had continued to decline “in the last month of the summer” by 7.6 percent or 1.6 million barrels per day on a 12-month basis.