OPEC sees softer oil demand, committed to stability

High oil prices in recent months are due more to financial market developments than fundamental growth in demand, Mohammad Alipour-Jeddi, OPEC’s head of petroleum market analysis, told the International Monetary Fund’s steering committee. The higher prices have coincided with a falling dollar and rising speculation in paper oil contracts, he said. “While financial market dynamics have been a contributing factor to record high prices, oil market fundamentals point to a market which is currently well supplied and the balance is expected to soften further due to lower seasonal demand in the coming months,” Alipour-Jeddi said in a statement to the committee.

He said the US economic slowdown and increased risk of recession, and the subsequent effect on the rest of the world, pointed towards a period of softer growth in demand. Oil demand in China and India is expected to grow at a robust pace, but below the rates achieved in 2007. “However, this assumes that these economies are significantly decoupled from US growth, a view that is likely to be tested over the course of the year,” Alipour-Jeddi said. He said global oil demand is expected to grow by 1.2 million barrels a day in 2008, the same pace as in 2007. But he added there were downside risks from economic slowdown, weather-related factors and the negative effect on transportation fuel demand caused by high prices.

However, he said supply growth from non-OPEC countries, ethanol production and other non-conventional sources would grow by 1.4 million barrels per day, outstripping demand. Rising oil stocks should help alleviate the impact of speculative activity on oil prices. “OPEC members will continue to closely monitor ongoing market developments and as always stand ready to take the necessary measures in line with their commitment to market stability,” Alipour-Jeddi said. (Reuters)