OPEC Cuts Oil Demand Forecast, Sees Ample Supply

OPEC on Friday cut its forecast for global oil demand growth in 2008 for the third time this year, the latest sign that record-high oil prices are slowing consumption.

The exporter group also said that it is pumping more than forecast demand for its oil, and that the current production rate combined with extra supply from Saudi Arabia should lead to rising inventories in the third quarter.

Oil Refinery in California
Oil Refinery in California

World oil demand will rise by 1.10 million barrels per day (bpd) this year, 60,000 bpd less than the previous forecast, OPEC said in its Monthly Oil Market Report for June.

The previous reductions were in May and February.

"The slow U.S. economy along with current oil prices will have its effect on oil demand not only in the U.S. but across the OECD countries in the second half of this year," the report by OPEC economists said.

"China, the Middle East, Latin America and India are expected to show healthy growth in oil demand for the remainder of the year."

The report reaffirms OPEC's view that consumers have enough oil and that factors beyond oil supply and demand are sending prices to all-time highs.

Crude oil hit a record $139.12 a barrel a week ago.

Some consumer countries, such as the United States, say current prices reflect a tight balance between supply and demand.

The U.S. this year has been urging OPEC to raise output.

But the Organization of the Petroleum Exporting Countries says factors like the weakness of the U.S. dollar, political tension and speculation are leading the market higher.

"Current price levels do not reflect supply and demand realities," OPEC said.

"A review of prospects for the remainder of the year also shows little support for prices to remain at current levels."

Less than IEA

Producer and consumer countries will meet on June 22 in Jeddah, Saudi Arabia, to discuss the reasons for the jump in prices, OPEC said.

But the meeting is not expected to lead to an easy fix.

British Prime Minister Gordon Brown, who plans to attend, said on Thursday he did not expect the talks to result in a short-term rise in oil output, but urged the world to work on a long-term energy strategy.

OPEC, source of two in every five barrels of oil, is the latest forecaster to trim its projection for world oil demand this year because of the slowing world economy and high prices.

But OPEC's adjustment is much smaller than that of the International Energy Agency, the adviser to 27 industrialized countries, which earlier this week cut its demand growth forecast by 230,000 bpd.

Strong consumption in China and the Middle East has been offsetting weak demand in members of the Organization for Economic Co-operation and Development (OECD).

OPEC again trimmed its estimate for supply from non-member countries in 2008, although its lower projection for demand resulted in little change in the amount of oil OPEC members need to pump to balance the market.

It expects non-OPEC supply to average 50.13 million bpd this year, down 50,000 bpd from the previous forecast, mainly due to lower-than-expected output from the UK.

Expected demand for OPEC oil is steady at 31.82 million bpd.

The 13 OPEC members produced 32.19 million bpd in May, the report said, citing figures from secondary sources.

It also said Saudi Arabia is expected to raise output by 300,000 bpd in June.

That puts OPEC production higher than expected demand for the group's oil in 2008, and should lead to a higher-than-normal inventory build in the third quarter and a contra-seasonal rise in the fourth.

"This clearly demonstrates that the market is amply supplied and that claims that the recent surge in prices is due to a supply shortage are unjustified," OPEC said.