LONDON: The world’s three big energy agencies are forecasting higher demand for Opec’s crude oil this year, a sign the producing nations’ strategy to let prices fall is starting to win them back market share from rivals who are cutting output.

After an oversupply of world oil sent prices tumbling in 2014, top Opec exporter Saudi Arabia urged fellow members not to prop up the market and to try to knock out competing sources like US shale, which, because it has higher production costs, had to cut output when prices fell.

In reports this week, The International Energy Agency and the Organisation of the Petroleum Exporting Countries have raised by at least 200,000 barrels per day (bpd) their estimates of demand for Opec crude in 2015, while the US government’s Energy Information Adminis­tration forecasts Opec will pump 140,000 bpd more.

At the same time data suggesting a forthcoming economic recovery has raised hopes for improving oil demand: Eurozone economic growth accelerated unexpectedly in the final quarter of 2014 as the bloc’s largest member, Germany, expanded at more than twice the expected rate.

“The main three monthly oil market reports...sent encouraging signals,” said Daniela Corsini, analyst at Intesa Sanpaolo.

“On average, their estimates of the call on Opec crude have been increased significantly.” Those estimates also indicate that lower oil prices, which have prompted shale oil and other oil producers to cut spending, are also forcing them to cut supplies.

That in turned has helped Brent oil prices to rise towards $62 a barrel, up more than 35 per cent from a near six-year low close to $45 a barrel on Jan 13, though still a long way off the $115 hit in June.

Opec officials have expressed cautious optimism about the price recovery and noted signs of higher demand.

Saudi Arabia’s oil minister Ali al-Naimi discussed a “relative improvement in the market in terms of an increase in demand and the stability of prices in the current period” this week with Algeria’s justice minister, the official Saudi news agency SPA reported.

Opec pumps about 30m bpd of crude, roughly a third of the world’s daily requirement. Rising demand for Opec oil is generally taken as a bullish sign in the oil market.

STILL CAUTIOUS: On Monday, Opec forecast demand for its oil this year would average 29.21m bpd, up 430,000 bpd from its previous prediction.

The IEA, which advises the United States and other industrialized countries, moved its forecast in the same direction on Tuesday, albeit by a more modest upward revision of 200,000 bpd to 29.4m bpd.

Also on Tuesday, the EIA in its report forecast Opec will produce 30.05m bpd in 2015, up from its previous projection of 29.91m bpd.

“I do believe demand is in a much better shape than we feared before and already expected right now,” said Eugen Weinberg, oil analyst at Commerzbank.

“All kinds of signs of demand being above expectation are already in place. Especially in the US, where we had a real boom in registrations of pickups and SUVs and everything else.”

Still, this has yet to translate into more bullish global oil demand estimates from the three forecasters. Instead they raised their these forecasts only slightly or kept them unchanged.

Published in Dawn, February 14th, 2015

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