At last week’s Opec meeting in Vienna, no change was made to production levels – but there were distinct rumblings about whether the amount of crude oil held in storage around the world should be taken more into account.
This seemed to be underlined by the fact that Opec referred to production levels, rather than quota levels – production levels, of course, are higher than the quotas would suggest, and the estimated level of compliance with the quotas has slipped from as high as 90 per cent early this year to around 65 per cent.
Today, Opec has highlighted the oil stocks issue again.
From its monthly oil market report:
Looking ahead, with the end of driving season, the start of refinery maintenance and continued low refinery runs, crude oil demand is likely to remain weak over the coming months. This is likely to lead to lower-than typical seasonal stock draws resulting in a further increase in the overhang. A colder winter would not be sufficient to remove the massive accumulation in distillate stocks, especially as part of its demand may be met by inexpensive natural gas. This could lead to an additional build in OECD commercial stocks, which currently stand just below the highest level reached in the third quarter of 1998.
Opec continues the bearish tone with comments that positive signs, such as a few OECD economies showing second quarter growth, and a pick up in Asia, it’s far too early for a turnround:
Despite these improvements, the rally in equity markets seems to be factoring in higher growth than the real economy can support and it is therefore likely that markets will remain at best within the current range for some time.
The real economy continues to face several challenges. US housing problems, despite some stabilization in sales and prices, are far from resolved. Unemployment is expected to rise further and banks, businesses and consumers, at least in the developed world, will remain constrained as they struggle to repair damaged balance sheets.
Stronger growth in developing countries and China will support world growth but may not be sufficient to prevent below-trend growth rates in the next two years. Moreover, public finances are also being strained by the massive fiscal, monetary and financial sector support that helped to cushion the economic downturn and prevent a financial system collapse.
The cartel tends to be bearish anyway. But contrast it with Goldman’s note we wrote about yesterday, which argued that US unemployment wasn’t even particularly significant. On the other hand, the IEA appears to share Opec’s misgivings about oil in storage.
Opec keeps oil output steady but hints emerge between the lines (FT Energy Source, 10/09/09)