What OPEC Has to Say about Oil Supplies

By: Maximilian Sparrowson

In a nutshell, the Organization of the Petroleum Exporting Countries (OPEC) says enough oil is being pumped on any given day that there is no need to up production. Plus, the weakened U.S. economy also means weakened consumption, which further underscores the need for more barrels of oil per day. Well, hands up whoever thinks that this statement DIDN'T push crude oil to a record high of over $113.00 per barrel this week! Anyone? Didn't think so.

What tangible data is OPEC basing its decision on? Apparently, whatever is causing the imbalance between the supply and demand for crude oil has little to do with actual production, or any lack thereof. Rather, it seems that typical seasonality, as well as the weak U.S. dollar, speculative trading and, of course, geopolitical uncertainties are responsible for disrupting the tender balance and pushing crude oil prices in the wrong direction. According to OPEC, pumping more than 32 million barrels of oil per day is ample for the maintenance of normal supply levels, and even to produce enough barrels per day to keep normal levels of stockpiles, too.

As for the demand, OPEC forecasts a decline of 1.4 million barrels per day to 85.7 million barrels, as the heating seasons concludes in the Northern Hemisphere. Now, if you are wondering how to match these two numbers, the 32 million barrels in daily production and 85.7 million barrels in daily demand, bear in mind that the equation is incomplete because it does not include oil producers' running inventories.

And as far as the oil demand growth rate is concerned, OPEC does not expect too much deviation, if any, from the last year's demand growth rate of 1.2 million barrels per day. And the International Energy Agency happens to agree, pegging the demand growth rate at 1.27 million barrels per day. The demand might be slowing down in North America, but strong consumption in Asia is likely to offset any deficiencies.

What does it mean for North American consumers and investors? Well, following "Occam's razor," whereby the simplest solution tends to be the right one, while OPEC believes things might balance out on the global level in 2008, we are likely to spend another rollercoaster year when it comes to both gas prices and investing in oil stocks.

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What OPEC Has to Say about Oil Supplies
— by Inya Ivkovic, MA
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