OPEC said February 13 its latest crude output cuts appeared to have halted the steep decline in oil prices but warned that growing consumer and industry stockpiles were likely to keep markets unstable.
OPEC said February 13 its latest crude output cuts appeared to have halted the steep decline in oil prices but warned that growing consumer and industry stockpiles were likely to keep markets unstable, especially as demand for oil continues to weaken in the second quarter. The oil cartel gave conflicting clues in its latest Monthly Oil Market Report as to whether a new cut might be on the cards when ministers next meet on March 15 in Vienna.
On the one hand, its estimates of January production at 28.71 million b/d are below the 29.2 million b/d it sees as the call on OPEC oil for 2009 as a whole and in line with the 28.75 million b/d it sees as the second quarter call.
For the first quarter, OPEC pegs demand for its own crude at 29.75 million b/d, 1 million b/d more than estimated January production.
But OPEC also voiced deep concern about rising inventories, including oil held in floating storage.
It noted that OECD stocks were now approaching 57 days of forward cover, which is five days more than the cartel feels comfortable with.
The current inventory "overhang" has been accelerated by the market having switched to contango, "which has encouraged traders and others to store excess crude in floating storage to profit from higher forward prices," OPEC said.
"By the end of January, an estimated 70 to 80 million barrels of oil was being stored offshore in 35 to 40...vessels, representing roughly 7% to 8% of the world VLCC fleet," it said.
"Moreover, governments in the US and China are taking advantage of low prices to fill additional strategic reserves," it said, noting that the US Department of Energy had resumed filling the Strategic Petroleum Reserve and that Chinese officials had acknowledged that they had been taking advantage of lower crude prices to fill stockpiles.
"The OPEC decision in Oran appears to have halted the downward slide in prices to excessively low levels, despite a steady stream of negative economic and demand data," OPEC said.
However, it added, "the high and growing stock levels--particularly for crude oil--are likely to continue to disrupt the overall stability of the market.
Their impact will become even more pronounced with the onset of low seasonal demand as well as the upcoming refinery maintenance period."