OPEC’s monthly report published in early June said world demand for its oil would average 30.7 million bpd in the second half, much higher than the 28.97 million bpd the 12-member group produced in May.
But its June meeting in Vienna broke up without any agreement on raising output quotas to deliver this additional 1.73 million bpd.
“You still have decent demand growth in China despite the country’s tighter monetary policies,” said Gordon Kwan, head of regional energy research at Mirae Asset Securities in Asia.
“Demand is also growing in the Middle East, so if they don’t produce more, they will be exporting less.”
Saudi Arabia is reportedly boosting its supplies to 10 million bpd in July, but several analysts expect to see an inventory draw from commercial stocks in the second half to help bridge the demand gap.
“It will be a mixture of increased OPEC production and a drawing down from stocks. That’s the most likely combination,” said Roy Jordan, an analyst at Facts Global Energy, which declined to give a numerical forecast.
David Wech, head of research at JBC Energy in Vienna, was also skeptical about OPEC members increasing their output to a level sufficient to bring the market into equilibrium.
“We will likely face some noticeable stock draw in H2,” he said.
Goldman Sachs projects an average stock draw in the second half of 0.8 million bpd.
“Increasing Saudi Arabian production now can certainly influence the size of the stock draw in the second half of this year,” Goldman Sachs head of energy research David Greely said.
“But what’s really important is what happens going into 2012 when we expect the market to become much tighter. We don’t believe that OPEC will be able to continue to raise production to meet oil demand growth in the face of weaker non-OPEC growth, and we expect to see OPEC’s spare capacity drawn down until it is effectively exhausted.”
There was a wide range of responses from the 14 analysts participating in the global Reuters poll, with the lowest increase seen at 1 million bpd and the highest at 3.2 million.
The most bullish forecast came from Barclays Capital which used 28.9 million bpd as a base line for the second quarter, and 32.1 million bpd as the call on OPEC for the third quarter, which it said was the most relevant to use.
The wide range of forecasts was also related to the fact that some analysts were skeptical about OPEC’s official production figure for May of 28.97 million barrels.
Ten analysts used the OPEC figure for their forecasts, arriving at an average increment of 1.40 million bpd needed to balance the market in the second half, or 1.43 million bpd if OPEC’s own forecast is included in the calculation.
Three analysts used their own estimates of OPEC output, which ranged between 28.56 million bpd and 29.16 million bpd. That led to increases of 1.54 million bpd to 1.8 million bpd needed to balance the market in the second half, or an average of 1.66 million bpd.
The US Energy Information Administration is close to this figure with its revised forecast of 1.7 million bpd for demand growth.
Olivier Jakob at Petromatrix thought the International Energy Agency’s forecast of the call on OPEC was nearer the mark, at 30.7 million bpd in the third quarter and 30.1 million in the fourth.
“If Saudi Arabia pumps at 10 million bpd, then we would have OPEC production at 30.5 mln bpd and basically an unchanged overall stock situation for the second part of the year,” he said in a note.
In its monthly report, the IEA noted that May crude supply had increased by 210,000 bpd to 29.18 million bpd, still 1.25 million bpd below production before war broke out in Libya.
Using an average of 30.4 million bpd from the IEA forecast for the call on OPEC in the second half would mean an additional 1.22 million bpd required to balance the market.
The agency’s executive director Nobuo Tanaka has said that the IEA will act “without hesitation” to release strategic oil reserves if Saudi Arabia fails to increase its output by a sufficient margin.
