Oil Demand Weak ... But Supply Weaker:
Equilibrium at a Higher Price Growing worries about the health of the global economy have lifted risk aversion and proven challenging for oil prices. Relatively, however, crude prices have fared well, with Brent trading above US$110/bbl.
By Hussein Allidina
MORGAN STANLEY ECONOMISTS recently downgraded their growth forecasts, prompted by disappointing developed world economic data, policy errors in the US and Europe, and the prospect of fiscal tightening in 2012. For 2011 and 2012, global GDP growth is
pegged at 3.9% and 3.8%, respectively, down from 4.2% and 4.5% previously. Developed markets will likely grow at a clip dangerously close to recession. Despite the OECD headwind, emerging market growth is expected to slow only slightly, contributing 80% to world GDP growth. Oil demand growth will slow in the H2 2011 in
Figure 1: Global Oil Demand – A Non-OECD Affair YoY Change in Oil Demand, mmb/d
our view. For the full year we see global demand growth of just over 800 kb/d (compared to the IEA’s 1.2 mmb/d estimate); however, on our estimates, growth in H2 will average only 230 kb/d YoY. Even with a slower growth profile, we see inventories drawing into year-end, as supply remains challenged, in both OPEC and non-OPEC countries. The loss of more than 1.5 mmb/d of Libyan production earlier
-3 -2 -1 0 1 2 3
Global Non-OECD OECD
Sources: IEA, Morgan Stanley Commodity Research estimates
this year has played an important role in tightening inventories and cutting spare capacity. If production rebounds from 80 kb/d
Figure 2: Lost Libyan Production (mmb/d) 2.0
1.5
today to some 300 kb/d in October as we expect, inventory draws in the Q4 will not be as severe as envisioned prior to the Gaddafi regime’s demise. However, lifting production back to levels seen prior the civil unrest will take 12-16 months at best — and will require the establishment
1.0
... we see inventories drawing into year-end, as supply remains challenged ...
0.5
of a transitional government, the review of existing agreements as well as repairs to both midstream and upstream infrastructure. Just as troubling, if not more, is
0 Sources: IEA, Morgan Stanley Commodity Research
the inability of non-OPEC supply to post noteworthy growth. As recently as April 2011, the IEA was calling for non-OPEC supply to increase by
September 2011 37
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