As non-Organisation of Petroleum Exporting Countries (OPEC) oil supply experienced a minor decline of 90 thousand barrels per day (tbd), and OPEC crude increased slightly, it is on record that the wake of the preliminary figures indicated that global oil supply remained steady last month from the previous month to an average of 85.57million barrels per day (mbd). Supply from most OPEC member countries remained relatively steady with Nigeria and United Arab Emirate (UAE) showing individual increases of more than 40tbd, while Venezuela and Angola crude production exhibited declines of more than 20tbd.
Before now, oil revenues accruable to Nigeria as an oil dependent economy were affected negatively by the declining supplies, especially driven by the activities of militants in the creeks, but the nation’s oil supply has recently started witnessing another growth trajectory rising back to the 2008 supply level after the Federal Government completed an amnesty deal with the militants.
OPEC in this month’s oil report said crude oil price developments saw two distinct patterns last month. Not a few oil market watchers noticed that after falling to a two-month low of $70.7 per barrel in mid-December, the OPEC Reference Basket rebounded on the back of positive economic sentiment and colder weather in the northern hemisphere, which triggered a surge in speculative activity. As a result, the Basket price averaged $74.01/b in December, the second highest monthly figure last year after November 2009.
A recent surge saw crude oil prices gaining more than $10 since mid-December to break above the $80/b mark. As a result of this upward push, the price of WTI averaged $82.48 per barrel in the first week of 2010. With the exception of 2008, this is the highest starting point in recent years.
As the market had been expected to continue to moderate, the jump in prices came as a surprise. Although prices have receded in recent days, this raises the question as to whether there are any new factors in the market that would support a higher price level or if the surge in prices represented only a temporary increase. OPEC in its oil market report had said that the Basket increased further in the New Year to hit $80.29 per barrel on January 7, 2010, the highest since early October 2008, adding that since then, prices have reversed on economic concerns, milder weather and inventory builds to stand at $75.79/b on January 18.
It could be recalled that globally, the world oil demand declined by 1.4 mbd in 2009. A cold winter, economic recovery and a low base for the previous year returned oil demand growth to positive territory by the end of the year.
This is also coming on the heels of OPEC saying that freight rates in the crude oil tanker market increased on average by 12 per cent last month, with the VLCC sector increasing by 18 per cent, Aframax by 23 per cent, and Suezmax declining by 5 per cent. Volumes of both crude oil and petroleum products stored on tankers were almost steady by the end of December compared to a month earlier.
In 2010, world oil demand is forecast to grow by 0.8 mbd. The decline in Organisation of Economic Cooperation and Development (OECD) consumption is expected to shrink as economic activity increases. Similarly, non-OECD countries are forecast to grow at a higher rate of 1.0 mbd, compared with 0.5 mbd in the previous year. â€œNon-OPEC oil supply growth in 2009 is estimated at 0.5 mbd, broadly unchanged from the previous assessment.
In 2010, non-OPEC oil supply is expected to increase by 0.4 mbd to average 51.3 mbd in 2010, following an upward revision of 42tbd. The adjustment came partially from the US and Russia on the back of healthy production in the fourth quarter of 2009.
â€œIn December, total OPEC crude production averaged 29.14 mbd, the highest level in 2009, indicating an increase of 78 tbd over the previous month. A cold snap across the globe along with increasing seasonal demand and product stock draws have underpinned product market sentiment and lifted crack spreads and refining margins, especially in the US and Europe.
â€œShould the cold weather persist, the overhang of middle distillate barrels would be partly mitigated, providing some relief to refiners in the coming weeks. However, the sustainability of recent developments in product markets and the positive impact on crude fundamentals and prices will largely depend on economic growth in the future. â€œOPEC spot fixtures and sailings from OPEC increased by 6 per cent and 1 per cent respectively in December, compared to the previous month,â€ according to the OPEC report.