IEA trims demand forecast for OPEC oil

The International Energy Agency projected demand for OPEC oil will decrease in the second half of the year as China shows signs of slowing economic growth.

During the last week of May the IMF cut its economy growth forecast for China to 7.75%, down from 8%. The Organisation for Economic Co-operation and Development also trimmed its expectations to 7.8% from 8%. Chinese leaders made statements in May they will tolerate a slower, but more ecological friendly expansion, boosting concerns for commodities demand.

According to data published during the weekend, China’s industrial output mismatched expectations and rose 9.2% in May, below forecasts. Factory-gate prices dropped for a fifteenth straight month. Chinese exports jumped by only 1% in May and shipments to the U.S. and European Union, the Asian nation’s two biggest export targets, declined for a third straight month. China’s imports were projected to gain 6% but official figures strayed well below and showed a 0.3% decrease, marking a ten-month low.

Consumer inflation shrank to 2.1%, mismatching a 2.9% forecast and Producer Price Index (PPI) tumbled 2.9%, above expectations of a 2.5% decrease. The M2 money supply jumped 15.8%, missing 15.9% expectation. Retail Sales met projections of a 12.9% gain and so did Industrial Production with a 9.2% increase on an annual basis.

According to the IEA, OPEC will have to pump out 29.8 million barrels per day in order to meet demand in the second half of the year, which is 200 000 barrels lower compared to IEAs previous projection. This means OPEC will have to cut its output by 1.1 million barrels, down from Mays seven-month high production of 30.9 million bpd.

The IEA said: “While Europe’s economic woes are taking a toll on demand, there are mounting signs that China’s oil use, like its economy, may have shifted to a lower gear.”

OPEC increased its output by 135 000 barrels to 30.9 million barrels per day in May. The group accounts for 40% of global oil production. Its leading producer, Saudi Arabia, boosted oil pumping by 220 000 barrels to 9.56 million bpd to meet demand for domestic power consumption. Iran and the UAE also increased their output, compensating for Nigeria, Libya and Iraq. Oil production outside the group remained unchanged, expected to increase pumping by 1.1 million bpd to 54.5 million a day.

“Relatively sluggish macroeconomic conditions are expected to keep a lid on growth in 2013, with absolute declines still projected across much of the OECD,” said the IEA.