The Organization of the Petroleum Exporting Countries (OPEC) recently released its oil market report for the month of October 2013 and has revealed that the OPEC Reference Basket Price declined by USD 2.04 during the month after four months of consecutive gains. This is in-line with analyst expectations that crude oil prices are finally heading towards the anticipated sequential decline.

Figure 1: Crude oil prices during the past year

Crude oil prices
Source: Organization of the Petroleum Exporting Countries (OPEC)

Oil refineries autumn seasonal turnaround

“All Basket component values moved lower, but by varying degrees. Most components were affected by high crude oil inventories, as refineries entered into autumn seasonal turnaround and refining margins remained low. Crude oil futures prices on both sides of the Atlantic moved lower in October with ICE Brent down $1.81 to $109.44/b and Nymex WTI declining by $5.68 to $100.55/b, which widened the Brent-WTI spread to $8.90/b. Downside pressure came on US futures due to the sharp climb in US crude inventories, even as the Federal Reserve left its economic stimulus intact following the US government shutdown. Easing geopolitical tensions also continued to deflate the risk premium in the market,” reported OPEC.

Global demand to grow faster than earlier estimates

OPEC forecasts the world economic growth to stand at 2.9 percent in 2013 and at 3.5 percent in 2014. OPEC is of the view that the major economies, especially in the EU, will move towards recovery and OECD countries will experience growth of 1.2 percent and 1.9 percent in 2013 and 2014 respectively.

Among the emerging economies, India has faced capital outflows recently, causing OPEC to estimate growth of the country at moderate levels of 4.7 percent. On the other hand, China’s stimulus efforts and increase in export activity will mean a growth rate of 7.8 percent in 2013 and 2014 both.

Figure 2: Economic growth expectations of OPEC

Source: Organization of the Petroleum Exporting Countries (OPEC)
Source: Organization of the Petroleum Exporting Countries (OPEC)

Owing to the upward revisions in growth in China, OPEC revised its estimates on global demand for oil upwards by 34,000 barrels per day. “This revision is based on actual and preliminary data for the first half of the year, generally coming from all OECD regions as well as some non-OECD countries, particularly in Africa. World oil demand growth for this year currently stands at 0.9 mb/d. For 2014, the forecast for world oil demand growth remains unchanged at 1.04 mb/d,” said the report.

Figure 3: OPEC forecast for global demand of crude oil

Source: Organization of the Petroleum Exporting Countries (OPEC)
Source: Organization of the Petroleum Exporting Countries (OPEC)

Non-OPEC supply and OPEC demand

OPEC expects an increase in non-OPEC supply of crude oil, given the growth in production from the U.S., Canada, Brazil, South Sudan and Sudan, Kazakhstan and Colombia. The organization also anticipates declines in the North Sea output and a decline in production from Syria and Mexico.

“Non-OPEC oil supply in 2013 is estimated to increase by 1.2 mb/d, representing a minor upward revision from the previous report. In 2014, non-OPEC oil supply is forecast to grow by 1.2 million barrels per day (mmbbl/d), also slightly higher than last month’s report,” stated OPEC.

In the month of October, OPEC’s crude oil output averaged 29.89 mmbbl/d, almost unchanged over the previous month’s output. However, demand for OPEC crude is estimated to average 29.9 mmbbl/d which is 0.6 mmbbl/d less than the average of the previous year. In 2014, the output is expected to decline a further 0.3 mmbbl/d to 29.6 mmbbl/d due to the growing output of the Americas.