According to a study recently released by the OPEC secretariat, world economic activity in the current year has been marked by cautious calm. However, data trends indicate that the second half of the year could see a rise in the demand for OPEC oil, whose output is set to reach approx. 30.5 million barrels per day (bpd). However, one must be vigilant over this relatively high rate, especially in light of the warnings and concerns over the possibility of world economic growth fluctuating as a result of changed circumstances, as mentioned by the same OPEC report. The rise expected in the second half of this year is mainly due to extremely low rates in the first half, but is also the result of the limited improvement in the US economy, and anticipated positive, albeit limited, economic data in emerging countries and the Eurozone. As an example, consider the continued upbeat data coming from the world's two largest economies, the U.S. and China, especially in relation to the growth of the real estate market or unemployment in the U.S. (although the data shows some improvement, it remains below expectations). In conjunction with these projections, austerity policies in the euro area continue, at a time when we are seeing an improvement in the Japanese economy, as a result of government economic stimulus policies. In the oil markets, it is expected that demand for this major commodity would rise in the second half of the current year, because of key seasonal variables during this time period. The rise in demand is fueled by several factors, led by the increased use of air conditioners in the summer, especially in developed countries, pushing demand for petroleum products up in the third quarter of the year. Global demand for oil is expected to rise to about 90.5 million bpd in the second half of 2013, which is higher than the consumption rate in the first half of the year estimated at about 88.8 million bpd. Regarding the demand for oil, it is expected that continued global economic growth would lead to larger increase in the demand for oil. In this vein, it is probable that the demand for oil would rise during the second half of the year by about 900,000 bpd, compared to an increase of 700,000 bpd in the first half of the year. However, despite these optimistic forecasts, one must be careful. Indeed, there is a strong possibility that weak economic performance would continue in the countries of the OECD (Western industrialized nations) given the data that shows European economies remain vulnerable, in addition to the risk factors that threaten economic recovery in the U.S. As for developing nations, the risks there result from an economic slowdown, especially in emerging countries, which have been the main engine of global economic growth in recent years. The countries of the Middle East and Latin America are the main areas where demand for oil may rise, given the growth in transport there, increased demand for electricity, and increased urbanization and construction activities. With regard to oil supplies, production is expected to continue to increase as it had done in the first half of the year, in non-OPEC countries such as the U.S., Canada, and the former Soviet republics, and in Africa and Latin America. The increase in production from outside OPEC this year is due to rising production in the U.S. and Canada. The output of non-OPEC countries is expected to rise by about 1.1 million bpd in the second half, higher than the increase in the output of non-OPEC countries in the first half of 2013, which was about 900,000 bpd. The study reached the conclusion that supplies would be adequate during the second half, and would also provide ample supplies for commercial inventories. It may be worth recalling here that crude oil prices have remained stable around the same level over the past two years, despite geopolitical problems in the countries of the Middle East, the global economic crisis, and the growing production of shale oil and gas in the U.S. and Canada. To be sure, even with the presence of factors that may push prices up or down, there has been a balance between supply and demand, which OPEC helped maintain, along with price levels. As an example of the stability of prices, we cite the average OPEC basket prices during the recent period, as mentioned by the OPEC secretariat: In 2013 and so far, the average OPEC basket price was $105.09 per barrel. The figure for 2012 was $109.45. In the first quarter of 2013, the price was $109.48, and $100.9 per barrel in the second quarter. The average basket price in the past three months ranged from $100 to $101 per barrel, a very small difference given the fluctuation in the prices of other major commodities in the global markets: In April, May, and June, the basket price was $101.5, $100.65, and $101.03 per barrel respectively. * Mr. Khadduri is a consultant for MEES Oil & Gas (MeesEnergy)
