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OPEC lowers its forecast for 2015 world oil demand

OPEC lowers its forecast for 2015 world oil demand

OPEC reduced its forecast for 2015 world oil demand once again today, causing crude oil prices to continue their downward slide. North Sea Brent fell below $65 per barrel for the first time since the fall of 2009. West Texas Intermediate also declined almost 4% ending the day at $61/barrel. Gasoline futures fell in sympathy, falling to $1.64 a gallon.

DID YOU KNOW?
70% of the world's oil is used for transportation. In North America, that number is closer to 90%.

OPEC cited the usual culprits in the reduced 2015 demand forecast. Developed countries such as Europe and Japan continue to consume less oil thanks to a persistently sluggish economy and improved fuel efficiencies for vehicles. Demand growth in developing nations such as China and India is rising slower than expected due to a slowing pace of economic growth. OPEC estimates the world will consume 91.13 million barrels per day (bpd) of oil in 2014 and is forecasting 92.26 million bpd will be required in 2015, an increase of only 1.12 million bpd.

Most interestingly in the OPEC report is the supply picture. World oil production in 2014 will be higher than initially forecasted, thanks to unprecedented growth in US shale oil production. Non-OPEC supply is estimated to hit 55.95 million bpd in 2014 and will rise by 1.38 million bpd for 2015. Almost all of that growth will come from the US and Canada. Production growth from Europe, Russia, Asia, Africa and the Middle East are expected to be flat to negative for this year through to 2015.

OIL PRODUCTION GROWTH BY NON-OPEC COUNTRIES (MILLION BPD, YEAR-OVER-YEAR GROWTH) SOURCE: OPEC MONTHLY OIL MARKET REPORT (DECEMBER 2014)

OIL PRODUCTION GROWTH BY NON-OPEC COUNTRIES (MILLION BPD, YEAR-OVER-YEAR GROWTH) SOURCE: OPEC MONTHLY OIL MARKET REPORT (DECEMBER 2014)

As a result of the increased North American supply and lower growth forecast in developing nations, OPEC estimates that it needs to produce only 28.9 million bpd next year.

However, the problem is that OPEC members produced an estimated 30.05 million bpd of oil in November. That means OPEC needs to cut 1.15 million bpd going into next year, just to prevent oil inventories from building around the world.

Just as the OPEC report was released to the public today, Kuwait, Saudi Arabia and Iran reduced their prices for crude oil sales to Asian refineries. This comes barely one week after price discounts were offered to Europe and the US. OPEC members are clearly signalling that they would rather cut crude oil prices than cut crude oil production. In short, expect lower crude oil prices until the supply/demand curve begins to stabilize.

Western Canadian Select historical pricing

Western Canadian Select historical pricing

Crude oil prices hit a 5 year low and continue the downward spiral

Crude oil prices hit a 5 year low and continue the downward spiral