OPEC leaves oil demand growth view unchanged
LONDON -- The Organization of the Petroleum Exporting Countries (OPEC) raised its strongest concerns so far this year about potential weakening of Chinese oil demand, three weeks ahead of its key meeting in Vienna to discuss crude production levels.
OPEC said that "weaker than expected economic growth in China in the 1Q and the potential difficulty in achieving 8% growth this year may dent oil demand consumption."
OPEC cut its estimate for Chinese oil demand growth in the 1Q by 20 Mbpd after the country's apparent oil demand dropped significantly, with March slowing to the most sluggish rate in seven months.
Apparent demand is the sum of Chinese refinery output and net product imports. It is used as a proxy to calculate demand since China doesn't publish figures.
Still, the group left its key oil supply and demand forecasts for this year unchanged in its monthly oil market report, but it warned of the need to closely monitor market developments, particularly regarding China. OPEC had previously focused on the potential for continued economic problems in the euro zone to weaken oil demand, but a slowdown in China would be of particular significance as it is the key driver of global oil demand.
OPEC members already face a number of challenges, including mounting pressure on their domestic budgets due to higher social spending and competition from rising shale oil production in the United States.
"While at the beginning of the year it looked as if further momentum was building up, the continued decline in the euro zone, the significant deceleration in the 1Q in some of the Asian economies and the recently acknowledged slowdown in Russia all have the potential to again push growth down" said the OPEC report.
Despite the more cautious tone from OPEC, analysts still expect no change to the group's 30 MMbpd oil production ceiling at its meeting in Vienna in may. "Unless we see a strong drop in prices below $100 a barrel, I don't expect any action" said Carsten Fritsch, an analyst at Commerzbank.
OPEC's coming output decision has been given extra significance by the sharp slide in oil prices to below $100 a barrel last month, a level many members say is the minimum fair price for their exports. That slump saw Venezuela call for an emergency meeting, briefly raising speculation that the group could move to cut production to shore up prices. Other OPEC officials later dismissed the idea, and prices since recovered.
The United Arab Emirates in late April said it was in favor of keeping current output levels steady at the coming meeting. The country's OPEC governor, Ali Obaid al Yabhouni, said the weakness in oil prices wasn't expected to last and the group's production should stay at 30 MMbpd.
Dow Jones Newswires