Gobal crude markets are heaving at least some sigh of relief as even the oil futures markets, for the first time in six months, have started to reflect growing inventories. However, the extraordinary and to a great extent the unexpected bull run in the recent months, which initially confounded many a pundits, has once again underlined how delicate and critical is the current balance between the global crude demand and supply. According to some analysts this balance is hanging on knife-edge. And the pundits saying so cannot be written off. There is indeed a very strong basis to what they are saying.
How thinly balanced is the market could be gauged from the fact that any disruption, anywhere in the oil supply chain, carries immediate weight in the global crude markets. Over the last about a week, the markets were showing anxiety over the oil workers’ strike in Norway, the third largest crude producer, with a production of around three million bpd. Prices started to cool down immediately after the Norwegian Labor Ministry announced that the government had ordered an end to an eight-day old oil and gas labor strike.
Immediately preceding the Norwegian strike, the issue of supply disruption from Iraq owing to pipeline damages, was enough to keep the market edgy. The markets today do not appear to be in any position to sustain any losses in supplies.
According to some estimates the OPEC members are expected this year to achieve their highest level of production in 25 years’ since the time of the second “oil shock” in the immediate aftermath of the revolution in Iran. However, the more chilling factor, as some analysts are putting it, is the fact that the global crude spare capacity today is at its thinnest in decades.
According to the London based Center for Global Energy Studies, the global oil industry appears to be going through a fundamental change. Oil demand is surging on the back of a strong global economic recovery, led by the United States and an industrializing China. After years of lackluster oil demand growth, with OPEC needed to keep a tight rein on supply to maintain prices, the balance appears to have shifted with the organization, now required to boost output to prevent prices from rising to levels that would choke off future demand growth, noted the Monthly Oil report of the CGES.
According to CGES forecast, the call on OPEC throughout 2004 would range from 27.9 million barrels a day in August and September to a peak of 28.9 million barrels a day in the months of March and April. Against this, the OPEC production throughout the year was projected to vary in a close band ranging between 28.0 and 28.4 million bpd in the year. According to these estimates, the global oil demand would oscillate between the peak of 83.2 million barrels a day in December to a low of 79.0 million bpd in the months of May and June.
In considerable contrast to the above demand and supply scenario last year, in 2003 the total global oil demand fluctuated only between 76.5 million bpd in May 2003 to 81.6 million bpd in December 2003. It is a point worth mentioning that almost two-third of the global oil demand is today met by non-OPEC output and the OPEC’s NGL, and they also do not have any spare capacity.
The rise in the global crude demand is definitely evident. The International Energy Agency has now revised its average demand growth forecast for 2004 by 360,000 barrels per day to 2.3 million bpd, the steepest rate since 1980, indicating a fundamental change in the market.