LONDON: The oil market has no room for more crude supplies, OPEC said on Wednesday as it trimmed its forecast for world oil demand growth in 2010 and hiked its estimate for production from countries not in the group.
The monthly report from the Organization of the Petroleum Exporting Countries, which pumps more than one in every three barrels of oil, said world oil demand would rise by 940,000 barrels per day (bpd) in 2010, 10,000 bpd lower than previously forecast.
At the same time, the group said crude oil production from countries not in OPEC would jump by 640,000 bpd this year, raising its estimate from a previous forecast of a 530,000 bpd rise.
"Demand for OPEC crude in 2010 is projected to average 28.8 million bpd, following a downward revision of 70,000 bpd from the previous assessment," OPEC said in the report. "This would leave no room for additional crude supplies in the market."
Total world demand is seen averaging 85.4 million bpd in 2010, the group said in the report, but demand for its crude would decline by 175,000 bpd from last year.
OPEC said that while recent data indicated demand growth had been slightly higher than previously estimated during the first half of this year, demand in the second half of the year could be hit by slower-than-expected economic growth.
"The recent drop in prices to the low $70s appears to reflect a shift in sentiment about the world economic recovery following the emergence of the sovereign debt crisis in the Euro Zone and initial signs of moderation in the pace of economic growth in China," OPEC said.
"At the same time, oil market fundamentals continue to be impacted by the persistent overhang in supply. Although demand has seen some improvement recently, this has been more than overwhelmed by the higher growth in supply."
Benchmark US crude prices fell sharply from a 19-month high above $87 a barrel on May 3 to a low of $64.24 just over two weeks later. Prices have since recovered to just below $73 a a barrel and continued to edge higher after the release of the report.
On Tuesday, the US Energy Information Administration cut its own oil demand growth forecast for this year due to the euro zone debt crisis.
Last month, the International Energy Agency cut its own 2010 oil demand growth forecast by 50,000 bpd to 1.62 million bpd.
Despite lower estimates of demand this year, OPEC members’ production has been creeping higher.
While members with output quotas, all except Iraq, met 53 percent of the targeted 4.2 million bpd cuts in May for the second month running, according to Reuters calculations based on the latest OPEC data, OPEC production was up from April.
Total OPEC supply including Iraq rose by 140,000 bpd in May to average 29.26 million bpd, the report said, citing secondary sources.
At current OPEC production levels, the oil market will have a surplus of 460,000 bpd this year, if the group’s estimates prove to be correct. This compares with a projected surplus of 400,000 bpd last month.
"The recent shift in sentiment, along with the growing imbalance in supply and demand fundamentals, highlights the need for an increasingly cautious approach when evaluating the market developments," OPEC said.
"This will be particularly important going forward, given the considerable uncertainties facing the market for the remainder of this year."
OPEC raised its forecast for world economic growth to 3.8 percent from 3.5 percent previously, based primarily on better-than-expected growth in Japan on the back of strong exports to Asia.
While there is expected to be a moderate recovery in oil demand in developed economies in North America and the Pacific region, a sharp decline in European consumption means total demand in member countries of the Organization for Economic Co-operation and Development (OECD) will decline this year.
Oil demand in the OECD will fall to 45.3 million barrels in 2010 from 45.5 million last year, with consumption in Western Europe down by 500,000 barrels.
In contrast, demand in non-OECD countries will rise by around 1.1 million bpd to 40.1 million bpd, with almost half that growth coming from China’s booming economy. OPEC left its estimate of Chinese economic growth at 9.5 percent for 2010.
If 2010’s predicted trend in OECD and non-OECD consumption continues in the coming years, developing economies will account for more than 50 percent of global oil consumption by 2015. –Additional reporting by Joe Brock