Economic woes in Europe and the USA impacted on August crude oil prices, which lost advances made a month earlier. In the US, oil demand contracted 1.3% YoY last June and the downgrading of its credit-rating by S&P coupled with less than positive job figures in August provided little relief despite the manufacturing and services sectors recording a modest expansion.
Crude oil prices noted further declines in August 2011 with West Texas Intermediate (WTI), the benchmark for North America, registering the largest decrease at 10.8% from US$97.14 to US$86.30 as demand growth did not keep pace with expansion of supply. Consequently, refineries have been storing oil rather than refining it and with storage capacity nearing its limit, producers were forced to sell into the lower-priced spot market. Further south, Mexican Isthmus crude and TJ Light from Venezuela also fell, by more than 7%, to record prices of US$101.06 and US$99.24, respectively.
Over in Europe, Brent declined by 6.4% from US$116.89 to US$110.46. However, the recent political turmoil in Libya has put Brent prices under upward pressure when compared with WTI as most of Libya’s oil is exported to Europe. As a result, the WTI/Brent differential widened during August from US$-19.75/bbl to US$-24.16/bbl. The latest indications are that the gap between Brent and WTI continues to widen, reaching US$-28.77/bbl on 16 September.
The OPEC reference basket, which encompasses about 12 different oil grades, saw its average price decline by 5.3% to US$106.32 during the month.
Considering full-year 2011 in terms of worldwide demand, a large share of the expected 1.2% rise to 88mbd in global oil demand is anticipated to originate in China and the wider Asian markets as well as the Middle East. China is forecast to take up half of the 2011 expansion in oil consumption. Meanwhile, the economic news out of China provides for a more positive note as its manufacturing output edged upward in August after witnessing a 28-month low the previous month.
The OECD is expected to register a 0.4% drop in oil demand to 45.97mbd. According to OPEC, West European oil demand is expected to fall by 0.8% YoY, following a 1.4% drop the previous year. In the US, the current economic indicators result in a demand forecast for the year 0.1% lower at 23.73mbd.
Looking forward to next year, the recent oil market volatility has made it more difficult to assess future market expansion. The developments in the US and European economies remain the key but positive news appears short in supply.