Muscat: The Organisation of Petroleum Exporting Countries (Opec), which supplies about 40 per cent of crude across the world, sees a possible drop in demand for crude oil in the coming months, caused by a slowdown in economic growth in several regions.
"As we approach the end of 2013 and head into the next year, we need to remain vigilant.
There remain many concerns for the market to digest, and act upon," said Abdullah Salem El Badri, Secretary General of Opec.
"The economy remains a major worry, particularly in the short- and medium-term," he added, while delivering the keynote address at the Gulf Intelligence Oman Energy Forum here yesterday.
While the Opec expects global economic growth to accelerate to 3.5 per cent in 2014 from 2.9 per cent this year, Europe faces a 'major challenge' in its labour market, and growth in China and India has slowed, he noted.
The Opec chief said the oil producers continue to see a number of uncertainties and challenges facing them this year. "These include the future of the global economy as it continues its recovery, geopolitical events and their potential and actual implications for the oil market, as well as some supply issues, particularly in North Africa and the Middle East." Despite these issues, however, there has been no shortage of oil in the market.
According to El Badri, Opec should be able to produce an additional six million barrels per day (bpd) of crude by 2018. The increase will make up for declining output elsewhere, in particular in the US where tight oil output is expected to start declining that year. Opec output will be around 30.7 million bpd in the fourth quarter of this year, he added.
The Opec chief said over the past few years, the market has not been directed solely by the fundamentals of supply, demand and stocks, as it has been in the past. "There are many other factors at play, such as the role of oil as an asset class, speculation, the futures market and spot prices, and of course the current economic environment."
"There has been and remains more than enough supply to meet the demand," El Badri said, adding, "This is the case for the rest of 2013 and 2014." Opec's spare production capacity will stay at "comfortable levels" for the foreseeable future.
In the US, he said, there has been some economic recovery, with improvements in the labour market, the housing market and stronger numbers for manufacturing and services, as well as improved consumer confidence. "We anticipate seeing stronger US growth in 2014, at 2.5 per cent, than the 1.6 per cent expected this year."
In Japan, while the country continues to enjoy government-led support measures, there remain challenges for the government in its ongoing recovery and fiscal consolidation efforts.
Also, the Euro-zone continues to be a region of mixed messages. There has been some improvement in output and sentiment, but the labour market situation remains a major challenge, particularly in places like Greece, Spain, Portugal and others. However, as the economy is coming from very low levels of output, there is some expectation of a slight recovery later this year and into 2014.
In China, recent data suggests that the economy has slowed a little. The country's economic growth for 2013 has slipped from a predicted eight per cent at the start of the year, to 7.6 per cent today. India, too, has seen its predicted growth lowered, and this now stands at five per cent for this year. "We hope that this slowdown is just a short-term issue, and not a long-term trend."
Given that world demand growth is forecast to increase by 800,000 barrels a day this year and one million barrels a day in 2014, there is clearly enough supply to meet the rising demand.
"Even though this year — in terms of prices — we have generally witnessed prices move in the $100-$110 range; a range that is acceptable to producers and consumers alike." It is important that prices do not witness extremes – neither too high nor too low.
On the supply side, there have been some disruptions in a number of producing countries in the Middle East and North Africa, as well as in the North Sea.
These developments, however, have had minimal impact on the market. Supply has been able to meet demand.
In addition, supply continues to increase with non-Opec countries' share expected to rise by 1.1 million barrels a day in 2013, and 1.2 million barrels a day in 2014.