Amid yesterday’s selling of equities and fresh worries over subprime mortgages, you might have missed the latest from the International Energy Agency. Stockpiles of crude in developed countries is poised to drop to the lowest levels in 10 years, the group warned. The solution, as if you didn’t already know, is that OPEC will need to come to the rescue by pumping more oil.
“Preliminary data suggest that OECD stocks have fallen by over 1.26 million [barrels per day] over the first two months of the year, and could be heading for the largest first quarter stock draw for over 10 years,” the IEA report advised, via Reuters. “In reality, stock trends and prices are signaling that higher OPEC exports will be needed in the months ahead.”
As it happens, OPEC is scheduled to meet in Vienna tomorrow to discuss anew the group’s output plans. Reports are circulating that the group’s preference is for keeping output steady. So much for a rescue plans. For example, Shokri M. Ghanem, head of the National Oil Corp. of Libya, said according to AP via the International Herald Tribune: “I don’t think there is a real need for doing anything.” The article also quoted oil analyst Kamel A. Al-Harami, former president of Q8, the retail arm of the Kuwait Petroleum Corp.: “I think [OPEC is] comfortable … because prices are at [an] acceptable level.”
Weighing the foreseeable future for oil prices probably depends on the crowd’s outlook for economic growth in the U.S. and the world. As economies slow, so too does the growth in oil demand, perhaps to the point of an outright decline. Absolute drops in oil consumption aren’t common, however. The United States, the single largest user of oil and the biggest importer of crude, consumed a slightly lower amount of oil in 2003 and 2005 vs. the respective previous years, according to BP data. But you have to go back 1990 and 1991 to find annual declines of more than 1%, based on average daily consumption. In fact, during the 40 years through 2005, U.S. consumption on an annual basis dropped on nine times.
Globally, oil consumption is even more biased to the upside. The last time the planet’s collective appetite for crude fell was 1993. In the last 40 years, annual declines for the world slipped only eight times.
With that in mind, the OECD projects that economic growth for the G7 nations will slow in this year’s first quarter and then pick up speed in the second quarter. “Global rebalancing is under way,” Jean-Philippe Cotis, OECD Chief Economist, said yesterday at a press conference in Paris. “The U.S. expansion has shifted into lower gear and the robustness of the recovery in Continental Europe has been confirmed. Meanwhile, growth in much of Asia is holding up well.”
In other words, don’t hold your breath for an imminent decline in global oil consumption. OPEC’s influence, in short, continues to strengthen.