OPEC will be called upon to open the taps earlier than previously expected in 2011 as near-record oil demand growth this year combined with more modest growth next easily absorbs supply increases from outside the group, a Reuters poll showed.
The poll of 12 top oil-tracking analysts showed that oil demand this year had recovered far faster than anyone predicted earlier in 2010, and while growth is expected to slow in 2011 it will still reach a new all-time high.
The unexpected surge in demand in the latter half of 2010 has reversed the contraction seen in 2008/2009 with this year's consumption growth estimated at 2.2 million barrels per day, the biggest jump since 2004 and a far larger rise than the 1.5 million barrels per day predicted by analysts just three months ago.
This year "turned out to be a year of recovery, with economic and oil demand growth clearly beating expectations", David Wech at JBC Energy in Vienna said.
That rapid surge in demand from 2009's low base has not yet translated into higher forecasts for next year's growth, with the average projection unchanged at 1.5 million barrels per day from the previous poll in September.
But increased supplies from outside the Organization of the Petroleum Exporting Countries are seen slowing even more dramatically onstream next year, a quarter of the 800,000 barrels per day seen in 2010.
The call on conventional OPEC crude — including production from Iraq that is currently exempt from output targets — will rise by 800,000 barrels per day in 2011 to 30.5 million barrels per day.
The expected increase needed for OPEC crude is 700,000 barrels per day above what was predicted in the September poll and 1.8 million barrels per day above the level the group needed to pump in 2009 during the global economic crisis.
Demand for conventional OPEC oil would be even higher without an expected rise to 5.8 million barrels per day, up 500,000 barrels per day, in OPEC production of crude-like natural gas liquids (NGLs) — and other fuels not covered by output targets.
At the end of November, a Reuters survey pegged the group's conventional production (including Iraq) at 29.14 million barrels per day, well below the average that the poll released on Wednesday suggests the market will need.
Demand growth is still centered on the developing world, with one third of the 1.5-million-barrels per day global growth coming from China. Demand in developed economies is seen slipping 300,000 barrels per day.
WILL OPEC STEP UP?
OPEC's analysts have the lowest demand estimate of any of the 12 forecasters for 2011, seeing just 87.1 million barrels per day of consumption, compared with an average of 88.6 million barrels per day.
That raises the question whether the group is prepared to move to stop a rapid tightening of the market, especially if more bullish forecasters such as Goldman Sachs, which sees demand at 89.4 million barrels per day next year, turn out to be correct.
In November 2009, the average forecast for demand growth in 2010 undershot by almost 1 million barrels per day earlier in December in Quito, Ecuador, and said it does not plan to meet again until June 2011 at the earliest, despite prices hitting a two-year high above $90 a barrel this month.
Prices in 2010 are on track to average $80 a barrel, with that expected to rise to $86 next year. Only 2008 has averaged more at $99 a barrel, when prices hit almost $150 before crashing as the economic downturn took hold.
"The main potential effective cap for prices is now OPEC, and the signaling from the Quito meeting is that OPEC may well be slow to come to that role," analysts at Barclays Capital said.
"An average of $85 for a year would most likely involve a period of trading above $100 per barrel."
OPEC is believed to be sitting on up to 6 million barrels per day of spare production capacity, though some believe the number is far less.
Stocks of oil in the developed world are also still bloated after the recession but have been coming down gradually in the second half of the year.
"OPEC spare capacity of 6 million barrels per day provides a cushion, but if oil demand continues to surprise, the market might start to become concerned," Credit Suisse analyst Prashant Gokhale said.
OPEC has consistently blamed financial speculation rather than tighter market conditions for driving prices higher, but many analysts believe the group has failed to recognize the resurgence in demand witnessed in the second half of 2010.
"Upward price pressure in the near-term WTI futures market right now is probably coming from the demand-side hedgers (consumers), who are keen to hedge more oil before prices rise even further," analysts at London's Centre for Global Energy Studies said, adding OPEC's inaction encouraged speculators.
"Who can blame them in view of next year's strong fundamentals and OPEC's evident lack of desire to ease the pressure."
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