The Organization of Petroleum Exporting Countries described the global economy as "subdued" and "fragile," predicting no immediate recovery in 2013. World oil demand is forecast to grow modestly as the song remains the same for the foreseeable future. Short-term oil markets, however, may see some volatility as the slowdown in China factors into the markets. Adjustments to tightened pressure on Iran, however, should encourage what OPEC described as a "comfortable" situation for next year.
OPEC, in its monthly report for July, said the prospects for significant recovery in the global market is "fragile" in large part because of the ongoing debt crisis in the eurozone coupled with stagnant employment prospects in the United States. The economic growth rate for members of the Organization for Economic Cooperation and Development is predicted at 1.4 percent for 2013, the same level as this year. Any major economic growth, said OPEC, will come from non-OECD members India, with an economic growth rate of 6.6 percent in 2013, and China, with a forecast of 8 percent. Nevertheless, world oil demand for 2013 is predicted by OPEC to average 89.5 million bpd, a decline of 100,000 bpd from the growth estimate for 2012.
The Chinese economy is slowing down. While the Chinese economy represents about half of the global oil demand, its pace has diminished. The International Energy Agency, it its monthly report, said there was "cautious optimism" that Beijing could keep its economy moving along, though historically, some oil benchmarks there have shown steady contraction. In its report, the U.S. Energy Information Administration said China cut oil imports in June to their lowest rate since late 2011. With its large economic representation in terms of global oil consumption, the slowdown in the Chinese economy is expected to keep oil prices tepid in the coming months.
While OPEC mentioned nothing specific of U.S. and European sanctions targeting the Iranian energy sector, the cartel did say that Iran was one of the players contributing to a general decline in OPEC oil production in June. Crude oil prices hit historic highs early this year when Iran threatened to choke off oil shipping lanes through the Strait of Hormuz, casting a shadow over any hopes for short-term global economic recovery. With the U.S. military sending more assets to the region, Iran has once again said there will be "bad consequences" should saber-rattling in the gulf continue. Should Iran somehow shut down the key strait, 20 percent of the world's maritime oil shipments would be shut out of the global marketplace.
That is until the weekend, when Abu Dhabi inaugurated its $3.3 billion oil pipeline to the port of Fujairiah. Middle East suppliers from Iraq to Saudi Arabia have looked to alternative land routes to get their oil to markets. Turkey, emerging as a key regional energy hub, announced last week it started importing a few tankers full of crude oil from Iraq and could eventually increase that to more than 100 shipments per day. Geopolitical tensions in the Middle East at the beginning of the year added more than 10 percent to crude oil prices. The UAE pipeline, however, should ease at least some of those concerns when as much as 1.5 million bpd starts moving around the Strait of Hormuz. While Iran will likely remain a factor in global oil markets given its position among OPEC nations, it should be more of the same long term. OPEC, for 2013, said economic and geopolitical factors may lead to uncertainty in market forecast, but there should be "a comfortable market situation next year."
By. Daniel Graeber of Oilprice.com