According to OPEC's last monthly Oil Market Report, OPEC Reference Basket fell $11.16 or 22.4% in December to settle at $38.60/b.
OPEC members seem to be satisfied from the efficiency of their recent actions as they believe that the reduction of daily production, decided last December in Oran Algeria, helped ease the downward slide in prices. According to cartel"s last monthly Oil Market Report, OPEC Reference Basket fell $11.16 or 22.4% in December to settle at $38.60/b, closing the month at $35.58. For the year, the Basket averaged $94.45/b. In the first half of January, ongoing conflicts in the Middle East and the Russia-Ukraine natural gas dispute revived some bullishness.
At the same time OPEC spot fixtures and sailings from OPEC countries fell in December from the previous month. US arrivals also fell on lower crude oil imports. Spot freight rates for crude oil tankers increased in December, impacted by the contango structure in crude markets which led to a good number of VLCCs being tied up in storage as well as stormy weather and port closures to the west of Suez.
OPEC underlines the current economic crisis as the main reason for falling oil prices. ?Crude oil prices remained volatile as the weak global economy was seen undermining demand growth? the report says, adding that further further pressure is coming from fund sell-offs for profit-taking. For one more time OPEC members are blaming speculators, but is more than clear that the main problem is the weak economy that reduces daily demand.
It is characteristic that oil producers are not optimistic about this year"s demand. According to the Oil Market Report, for the current year oil producers are waiting drop of demand by 1.4 million barrels per day. ?The demand for OPEC crude in 2008 is estimated to average 30.8 mb/d, a decline of 0.5 mb/d from the previous year. In 2009, the demand for OPEC crude is expected to average 29.5 mb/d, a drop of 1.4 mb/d from the year earlier?. At the same time they admitted that demand for oil shrunk in 2008, the first year of negative growth since 1983. ?World oil demand in 2008 remains broadly unchanged from the previous assessment, showing a decline of 0.1 mb/d, the first year of negative growth since 1983. The erosion in US oil consumption of 1.1 mb/d is a major factor behind the sharp decline in oil demand last year. In 2009, world oil demand is expected to see continued negative growth of 0.2 mb/d. The huge decline in the OECD consumption, particularly in the US, is expected to offset weaker growth in non-OECD, primarily from China, the Middle East, and Other Asia. Taken together, these countries are expected to growth by 0.6 mb/d, representing 78% of total non-OECD demand growth.
Oil producers estimates are not quite optimistic for the world economy during 2009, as well. ?The forecast for the global economy in 2009 has been reduced by a further 0.2 percentage points to 1.3% as major OECD regions slip deeper into recession and economic activity in developing countries and China slows sharply. US labour market conditions deteriorated further in December, with the unemployment rate rising to a fifteen-year high of 7.2%. The Fed lowered its target for the federal funds rate to between zero and 0.25% and China cut its key one-year lending rate to 5.31%, the fifth reduction in three months. Chinese exports fell by 2.8% y-o-y, the second monthly drop. The World Bank is forecasting world trade volumes will drop 2.1% in 2009, the first decline in 25 years?.
Non-OPEC oil supply is estimated to increase 0.1 mb/d over the previous year and a downward revision of 50 tb/d versus the last assessment. The revisions to the full year estimate are concentrated around the fourth quarter. In 2009, non-OPEC oil supply is expected to increase 0.6 mb/d over last year, following a downward revision of 120 tb/d. The revision to the production outlook is principally due to lower expectations for Russia, Azerbaijan, Brazil, Mexico and Oman. In December, total OPEC crude production averaged 30.3 mb/d, a decrease of 0.8 mb/d over the previous month.
A combination of a cold snap across the western Hemisphere with unseasonable cuts by refiners and lower cost of crude has provided support for product prices and refining economics over the last few weeks. The recent positive developments in product markets may not last long, as the recessionary outlook for the world economy may further undermine product demand and exert pressure on refining economics as soon as the impact of the cold winter weather eases.