Opec eyes OECD demand

The Organisation of Petroleum Exporting Countries meeting in Luanda, Angola, agreed on Tuesday to leave oil output curbs unchanged, while calling for greater compliance with existing output targets — a signal the cartel currently believes the market to be well supplied.

One of the big debate points in Luanda, however, focused on how quick demand recovery in OECD countries would be in 2010. Remarks from Opec’s opening address highlighted the main issues as follows (our emphasis):

We also saw how crude oil prices had continued to improve from the lows experienced late last year, even though the market was still very volatile. Since then, the economic recovery has gathered pace. More OECD countries are coming out of recession and growth is accelerating in emerging markets, especially in Asia.

However, doubts remain about the dynamics of the recovery. This is not helped by continued uncertainty in the financial sector and worries regarding growth momentum on the back of still-rising unemployment and fears that stimulus measures may come to an end too soon. The weak, fluctuating dollar is adding to the uncertainty.

Turning to oil demand, there is a mixed picture in the market. Demand growth in the emerging economies is improving, but the OECD remains in negative territory. The market continues to be well supplied with crude and inventories are at high levels. Prices have moved up to more comfortable levels. This is good news for investment in production capacity and future supply. Some postponed projects have already been started up again in our Member Countries. However, the fragility remains in the market and we should not forget the detrimental volatility we experienced last year.

This is one of the issues we must again address at today’s meeting. For our part, we will continue our efforts to restore stability and balance to the market, in the interests of producers and consumers alike.

Considering the drop in OECD demand this year proved much stronger than many in the market — especially peak oilists — had expected, it makes sense for Opec to have stressed the issue so prominently in Tuesday’s meeting.

On that note, we’d flag up the following two charts from oil analyst Morgan Downey, author of Oil 101, which neatly expresses the situation as it stands today: